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Date of Last Interim Strategy Note February 17,2005 Currency Equivalents (As of April 11,2007)
US$1.OO = Angolan kwanza 79.966 1 Angolan kwanza = US$0.0125
Government Fiscal Year January 1 to December 3 1 A C R O N Y M S AND ABBREVIATIONS AfDB ADRP AUPEC DFID EC ECP EITI EMTA EMRP HAMSET IBRD IDA IEG IFC IFMS IMF ISN MDGs MIGA MPLA PEFA PEMFAR UNDP UNITA
African Development Bank Angola Demobilization and Reintegration Project Aberdeen University Petroleum Economic Consultancy Department for International Development (U.K.) European Commission Estratkgia de Combate a Pobreza (Poverty Reduction Strategy) Extractive Industries Transparency Initiative Economic Management Technical Assistance Project Emergency Multisector Recovery Program H N / A I D S , Malaria, Sexually Transmitted Diseases, and Tuberculosis International Bank for Reconstruction and Development International Development Association Independent Evaluation Group International Finance Corporation Integrated financial management system International Monetary Fund Interim Strategy Note Millennium Development Goals Multilateral Investment Guarantee Agency Movimento Popular da LibertaGiio de Angola (Popular Movement for the Liberation of Angola) Public expenditure and financial accountability Public Expenditure Management and Financial Accountability Review United Nations Development Program Uniiio Nacional da Independ2ncia Total de Angola (National Union for the Total Independence of Angola) Obiageli Katryn Ezekwesili
Vice President: Country Director: Country Manager and Task Team Leader:
Michael Baxter
FOR OFFICIAL USE ONLY THE REPUBLIC OF ANGOLA INTERIM STRATEGY NOTE Contents EXECUTIVE SUMMARY
A. B. C. D.
i
1 2 4 7 8
Economic Developments ......................................................................................... Political Context and Governance ........................................................................... Poverty and Social Profile ....................................................................................... Private Sector Development Context ......................................................................
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24 24 27
IDA Eligibility and Creditworthiness .......................................................................... 13 I S N Alignment with the Africa Action Plan................................................................ 15 Governance Challenges in Angola: Questions and Answers ...................................... 16 Bank-supported Projects Emphasize Improved Public Financial Management ..........17 I S N Consultations with Partners-What We Heard .................................................... 24
Figures Figure 1: Evolution of Angolas Real GDP Per Capita. 1960-2006 .......................................... Tables Table 1: Current IDA Portfolio ................................................................................................ Table 2: Proposed Lending. M a y 2007-June 2009 (US$ millions) ......................................... Table 3: Proposed Advisory and Analytic Work. M a y 2007-June 2009 ................................. Table 4: Partnerships in Supporting Angolas Development Program .................................... Table 5: Critical Risks and Mitigation Measures .....................................................................
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11 14 14 23 25
has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not be otherwise disclosed without World Bank authorization .
Annexes Annex 1: I S N Results Framework........................................................................................... 28 Annex 2: Angola: Macroeconomic Framework. 2003-07 ...................................................... 31 Annex 3: Angola: Joint IMF-World Bank Debt Sustainability Analysis ................................ 32 Annex 4: Landmarks in Angolas Political Evolution since 2002 ........................................... 46 Annex 5: Angolas Status with Respect to Criteria of the Extractive Industries Transparency ... Initiative............................................................................................................................ 47 Annex 6: Angolas Progress towards the MDGs .................................................................... 48 50 Annex 7: Non-concessionalBorrowing by Government of Angola since 2004 ..................... Annex 8: Interim Strategy Note, 2005-06: Progress in Meeting Triggers.............................. 52 Annex 9: Advisory and Analytical Work under Interim Strategy Note, 2005-06 .................. 53 Annex 10: Progress on Selected Recommendations of PEMFAR .......................................... 54 Annex 11: Standard CAS Annexes ......................................................................................... 56 MAP: 33361
This Interim Strategy Note was produced by a team led by Albert0 Chueca Mora. Country Manager. The core team included Wendy Ayres. Francisco Carneiro. Christopher Porter. and Paola Ridolfi. Valuable contributions have been made by Stefania Abakerli. Wim Alberts. Allison Berg. Eduardo de Sousa. Abdelmoula Ghzala. Giuseppe Iarossi. Mohamed Khatouri. Olivier Lambert. Brian Levy. Lance Morrell. Peter Nicholas. Mirey Ovadiya. and Jean J. De St. Antoine.
EXECUTIVE SUMMARY
i. Country context. Angola has made considerable progress since i t s civil conflict ended in April 2002. Millions o f internally-displaced persons and refugees have returned to their places o f origin and restarted their livelihoods. Moreover, high global o i l prices and increasing oil output has made Angola one o f the fastest growing countries in the world. T h i s has helped Angola make significant progress toward macroeconomic stability, with inflation declining significantly and international reserves rising. Enjoying an average GDP growth rate o f 11.5 percent during 2003-05, Angolas $1980 per capita income i s approaching that of middle income countries. However, more than 40 years of conflict before and after independence left Angola with some o f the worlds worst human development indicators, huge damage to infrastructure, fragile human and institutional capacity, and weaknesses in governance that may be amplified b y burgeoning o i l revenues. Angola i s one of the worlds most unequal societies. Perhaps the single biggest challenge the country faces i s ensuring that the benefits of o i l wealth are shared widely and that poverty and inequalities are reduced.
i. i Angolas development program. Angola prepared a draft Poverty Reduction Strategy Paper in December 2003. However, the first version of this strategy, which covered 2004-07, did not anticipate the rapidly rising o i l revenues o f the past few years and therefore the fiscal envelope available. Government i s revising the ECP covering 2006-08. The draft ECP, which w i l l soon be finalized and submitted to the Bank, proposes to implement a public expenditure program focusing on priority areas ranging from social reinsertion o f excombatants, de-mining, and food security and rural development to restoring social services and infrastructure, and strengthening governance and economic management. ii i . Role of the Bank. Although country circumstances have changed since the previous ISN, Bank engagement continues to be important to Angola. Angolas high o i l revenues have enabled i t to attract considerable non-concessional resources, thereby reducing the significance of IDA financing. The Independent Evaluation Groups 2007 Country Assistance Evaluation recommended continued Bank engagement to meet Angolas demands at this stage of i t s development. Reasons include: the Banks knowledge and analytical capacity to provide government with policy advice and support in relevant areas such as poverty alleviation strategies in a post-conflict, resource-rich, unequal and extremely poor society; governance in general, including public financial management; and the prioritization and implementation o f public investment decisions. Bank engagement can also leverage resources from government and others, and help ensure a focus on social inclusion and reducing poverty. Finally, the Banks ability to leverage partnerships should help improve the effectiveness o f aid by ensuring coherence o f overall donor support and the development of a results-focused approach in line with governments development program.
The ISN. A two-year Interim Strategy Note i s preferable to a longer-term country iv. assistance strategy for two reasons. First, Angola i s entering a two-year period of heightened political activity in that legislative elections are slated for 2008 and presidential elections for 2009. Second, Angolas rapidly growing o i l revenues, willingness o f alternative lenders to provide funds, rapidly increasing per capita income, and possible future movement towards
IBRD creditworthiness suggest that the Banks relationship with Angola i s likely to evolve significantly in the medium-term.
The Bank strategy. The Interim Strategy for Angola i s organized around three pillars: (a) strengthening public sector management and government institutional capacity, (b) supporting the rebuilding o f critical infrastructure and the improvement o f service delivery for poverty reduction, and (c) promoting growth o f non-mineral sectors. These pillars w i l l be implemented through continued support for the activities started under the previous ISN, and modest new lending. It w i l l also entail analytical and advisory work that w i l l build on past efforts, complement new projects, and help inform and prepare the ground for a CAS.
v.
Good governance will be a central theme of Bank support during the ISN period. vi. The role of good governance in achieving development outcomes i s particularly important in Angola, given the challenges associated with managing significant mineral resources. The Bank w i l l focus on helping government strengthen i t s capability to perform i t s functions transparently and effectively. Support from the Bank i s expected to help strengthen public sector management and capacity, with a particular emphasis on financial management and public investment planning and management. The Bank program w i l l address two major constraints in these areas: weak institutional capacity; and a lack o f information on the design and performance of public expenditure programs. Resources will be provided on IDA hard terms. The terms of IDA financing vii. proposed in this I S N reflect the recent Board recommendation in light of Angolas nonconcessional borrowing.
viii. Partnerships. The Bank w i l l seek to strengthen partnerships in pursuit of i t s objectives in Angola. To increase the effectiveness of World Bank Group support, IDA, the IFC and MIGA w i l l work closely together on efforts to promote private sector development, particularly o f small and medium sized enterprises. To increase the effectiveness o f external resources in Angola, the Bank w i l l collaborate with other development partners. A particular challenge i s working out how to engage effectively with non-OECD partners. The bank w i l l also seek new and more sustainable ways of engaging with the private sector and civil society organizations. ix. Managing risk. T h i s I S N recognizes that Angola i s a high risk country in which to do business. Specific risks relate to macroeconomic management, political stability, governance and corruption, capacity constraints, HIV/AIDS and oil price declines. This I S N proposes a number of measures to reduce the Banks exposure to risk.
X.
Are the proposed level, terms, and nature of Bank engagement in Angola appropriate given Angolas country situation and development needs? Does the program adequately recognize the risks o f engagement in Angola and are proposed risk mitigation measures adequate?
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1. T h i s Interim Strategy Note (ISN) sets out the proposed next phase o f the World Banks support to Angola, covering the period M a y 2007 to June 2009. I t also provides an assessment o f progress under the I S N for 2005-06 that was discussed by the Board on February 17,2005 (report 31128-AO).
1. COUNTRY CONTEXT
2. After several failed peace processes, Africas most protracted conflict, between the Uniczo Nacional da Independhacia Total de Angola (UNITA) and the Movimento Popular da Libertaciio de Angola (MPLA), ended in April 2002. Peace in Angola appears to be robust. UNITA has officially ceased to be a rebel movement and has transformed itself into a legal political party in anticipation of elections planned for 2008-09. 3. The potential (and need) for Angola to move beyond reconstruction to equitable growth and development i s greater than ever. Angola i s one of Africas most resource-rich countries. I t i s currently Sub-Saharan Africas second largest o i l producer (following Nigeria) with production expected to reach 2 million barrels per day by 2008. I t i s also the worlds fourth largest producer of diamonds (in value terms), and contains vast natural resources in minerals, water, agriculture, forestry, and fisheries. Now, with peace and a booming resources sector, Angola has an unprecedented chance for a new beginning focused on poverty reduction and development.
4. Angola faces a range of challenges and many social and political risks. Following 14 years of anti-colonial struggle and then 27 years o f civil war, much o f Angolas infrastructure i s s t i l l in shambles, notwithstanding five years of peace and the recent start-up of some reconstruction programs. Some 80 percent of the road network i s in extremely poor condition, the rail network barely functions, electricity distribution i s limited and unreliable, and water and sanitation services are poor in urban and rural areas. The war also left Angola with some o f the worlds worst human development indicators, tens o f thousands of exsoldiers needing to be reintegrated into civilian life, and 3.7 million internally displaced persons and refugees. The country i s characterized by weak governance and fragile human and institutional capacity. Angola i s also one o f the worlds most unequal societies. Thus, perhaps the single biggest challenge the country faces today i s to ensure that the benefits o f o i l and mineral wealth are shared widely and that poverty and inequalities are reduced. Unfortunately, as in other countries, burgeoning resource revenues may amplify weaknesses in governance, rather than dampen them.
5. To address the challenges and consolidate peace and national reconciliation, government has started to implement programs aimed at restoring order and security, addressing some of the needs of the most vulnerable groups, revitalizing the economy, restarting essential social services, and reinstating critical infrastructure, including
roads, bridges, and railways. To provide a sound basis for economic management and to restore the confidence of development partners and investors, government i s undertaking public financial management reforms, and i s tackling issues of governance. I t i s finalizing i t s poverty reduction strategy for 2006-08 (Estratbgia de Combate a Pobreza or ECP) to take stock of the new macroeconomic realities and rapidly growing revenues. However, much more needs to be done to put the country on a path of sustainable, broad-based growth. With a sounder business climate, Angola w i l l be able to attract private investment in manufacturing, agriculture, and services-areas o f the economy that have seen little investment since independence. Angola occupies a strategic position in Africa. With improvements in roads, railways, and ports, and sound economic management, i t could play a key role in regional trade and growth. However, to realize i t s potential, Angola needs improved governance, strengthened institutional capacity, and much greater transparency in public finance. And much needs to be done to involve society at large in decisions on public spending and in monitoring the use of funds to ensure that growth i s equitable. Without such changes, there remains a risk that Angola w i l l face further decades of poor governance, high poverty and inequality, and even localized conflicts.
6.
A.
Economic Developments
7. Due to increasing oil production and rising international oil prices, Angola has enjoyed one of the highest economic growth rates in the world in recent years. Real GDP grew by 15 percent in 2006 (following 21 percent growth in 2005), largely reflecting o i l production and revenues; outside o f oil, the economy i s estimated to have grown at 17 percent in 2006 (figure 1). In addition to minerals, output o f public services, agriculture, construction, and public utilities has grown strongly recently, increasing by an average of about 10 percent during 2004-06. However, growth in the non-mineral economy i s expected to slow to a more sustainable 5-7 percent over the medium term once the economy moves from the post-war recovery phase to a broader development stage.
Figure 1: Evolution of Angola's Real GDP Per Capita, 1960-2006
3000 -
/ - & \
Oil prices mom than double in 1980 and remain high until collapsingin 1993
-GDP
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Source: Angolan authorities and IMF and World Bank staff estimates.
Fiscal and monetary management has been reasonably sound. Angolas fiscal 8. position i s currently strong. Higher o i l exports and prices have boosted government revenues, which increased from 37 percent of GDP in 2004 to an estimated 42 percent o f GDP in 2005. While revenues are expected to continue to rise in 2006 and 2007, the rapid growth o f GDP means that revenues w i l l remain at about the same level as a proportion o f GDP. Government expenditures increased from 37 percent o f GDP in 2004 to 38 percent o f GDP in 2005, but are expected to gradually decline as a proportion of GDP, falling to below 34 percent of GDP in 2007. Public spending on consumption and defense has so far grown faster than social spending. The latter has actually increased lately, but i s s t i l l l o w as a share o f GDP. Expenditures on education increased by 13% and 47%, respectively, in 2004 and 2005, while spending on health grew b y 15% and 17% over the same period, in dollar terms. Expenditures on social security, welfare and housing also increased, growing by 10% and 160% over 20045. Angola registered an overall fiscal surplus of about 7 percent o f GDP (US$2.2 billion) in 2005. Inflation was 12 percent at year-end in 2006, down from 23 percent in 2005, largely due to governments avoidance of money creation for deficit finance, together with smaller fiscal deficits (although fiscal deficits w i l l need to come down further if the real exchange rate appreciation i s to be slowed). The macroeconomic framework (2003-07) i s in Annex 2.
9. The external outlook i s positive as a result of high international oil prices and rising domestic oil production. The external accounts have moved into surplus in 2005 (12.9 percent o f GDP), after a widening o f the current account deficit in 2003 (5.1 percent of GDP) due to higher imports o f goods and non-factor services related to investments in the oil sector. Despite substantial interventions in the foreign exchange market, the monetary authorities increased gross official reserves from US$400 million in 2002 to US$5.3 billion in 2006, which i s sufficient to pay for five months of non-oil imports.
10. Debt sustainability indicators have improved, but new borrowing on nonconcessional terms raises risks. Based on the joint low-income country debt sustainability framework of the World Bank and the IMF carried out in 2006, Angola i s assessed to be at moderate risk o f debt distress. Debt ratios have improved substantially in the last two years, and w i l l continue to do so under the baseline scenario used in the debt sustainability analysis, owing to higher o i l revenues. Foreign exchange reserves are also expected to continue to rise-provided that Angola implements prudent macroeconomic policies-reducing the likelihood o f Angola facing repayment difficulties on i t s external debt. With i t s heavy reliance on oil, however, Angola remains vulnerable to reductions in o i l prices. Going forward, Angola w i l l be at much lower risk of debt distress if i t abstains from further nonconcessional external borrowing. (See Annex 3 for details of the debt sustainability analysis.) 11. Recent good macro performance is more a result of growing oil revenues than of sound policy design and implementation. The first priority for government i s to prepare a clear strategy to manage the o i l revenues in the medium to long-term. Other important measures are to adopt a medium-term framework to promote fiscal discipline and minimize the risk o f pro-cyclical spending; build up financial reserves to protect against adverse external shocks, reduce the risk of Dutch disease, and preserve some o f the o i l windfall for future generations; improve capacity to plan, execute, monitor, and audit public expenditure;
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and enhance management o f the exchange rate. Several development partners are helping the government to address the issues. 12. The Angolan authorities decided in March 2007 not to enter into a program with the I M F . The Angolan authorities believe that due to the current strong macroeconomic performance and increasing foreign exchange reserves, entering into a program with the IMF i s not necessary at this time. They have indicated that they would like to deepen their engagement with the Fund in other ways, including through more intensive policy advice (which could involve staff visits between regular consultations), tailored technical assistance, and data support. The 2006 Article IV consultation was concluded in July 2006. The main policy themes discussed with the authorities included sustainability of fiscal policy, inflation, public finance management, competitiveness, natural resource management, and debt sustainability. The Fund w i l l continue with i t s regular cycle o f Article I V consultations. 13. Angola repaid its principal arrears (US$2.3 billion) to the Paris Club creditors in early 2007. The government i s making payments on current maturities falling due. They are also seeking an agreement with the Paris Club on the late interest (about US$1.8 billion at end-2005) outside a Fund-supported program.
B.
14. Government has successfully maintained peace since the end of the civil conflict in 2002. The Government has increasingly brought stability to all regions of the country. I t signed in August 2006 a peace agreement with the Cabinda Forum for Dialogue, an umbrella group o f civil society organizations and pro-independence factions, granting the oil-rich enclave o f Cabinda special status, but reaffirming Angolas territorial integrity. Efforts to clear landmines and rebuild roads and bridges have opened up most o f the countrys main arteries to movement of people and goods. This has allowed nearly 3.7 million displaced people, both within Angola and from neighboring countries, to return home and restart their livelihoods. (See Annex 4 for key events in Angolas political evolution since 2002.)
Progress with demobilization and reintegration has been steady. Nearly 100,000 15. UNITA ex-combatants have been demobilized through programs managed and paid for by government (and supported by IDA). The great majority o f the former fighters have benefited from training and other types of assistance intended to help them reintegrate into civilian life. Surveys administered three to six months after demobilization found that 57 percent o f former fighters are employed or self employed, 95 percent have access to land for agriculture, and 90 percent consider themselves socially integrated in their communities. Preparations for presidential and legislative elections are underway. After a slow start, arrangements for elections have accelerated. Voter registration for both the presidential and legislative elections started on November 15, 2006 and i s expected to be complete b y
16.
For example, the U.S. Agency for International Development i s supporting the preparation of a mediumterm expenditure framework, and the establishment of a fiscal programmingunit in the Ministry of Finance.
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June 2007. Elections for the legislature are now expected in 2008, with the presidential elections in 2009. 17. Government has made progress with decentralization. Government approved a national strategy for decentralization in 2001, and i s refining a decentralization program which w i l l be implemented gradually. More recently, the Council o f Ministers has revised the countrys legal framework for decentralization. Through scaling up i t s financial and institutional support to the IDA-supported Third Social Action Fund Project, government has expanded the coverage and outreach o f local government. Transparent fiduciary procedures and accountability practices have been developed within this project; i t i s proposed that they be mainstreamed through social action fund projects and other vehicles.
Governance
18. Shortfalls in the effectiveness and transparency of public resource management continue to hinder governance. The governance plan for the country i s laid out in the 2005 PEMFAR. Progress in implementing the recommendations o f the review i s considered moderate or unsatisfactory overall (see Annex 10): Sonangols quasi-fiscal activities have been reflected in the budget only ex post; consolidation o f the single treasury account i s delayed; information on civil servants i s not available and a multi-year public investment program has not been adopted. On the other hand, macroeconomic management has been strengthened and there has been progress on the accounting and reporting system. As regards the Country Policy and Institutional Assessment (CPIA), the rate for the cluster on economic management has improved from 2.5 in 2005 to 2.7 in 2006 because o f an increase in the rate on the performance o f fiscal policy (from 2.5 to 3.0). The overall CPIA for Angola has increased from 2.6 in 2005 to 2.7 in 2006, which i s a ranking o f 35th out of the 45 African countries included in the 2006 CPIA exercise. 19. Poor governance discourages private investment and limits the ability of a country to reduce poverty and inequality. Angola i s perceived to be one o f the most poorly governed countries in the world, according to indicators compiled b y the World Bank Institute.* Other sources o f information confirm this finding. For example, data from the forthcoming Bank-led Investment Climate Assessment show that f i r m s in Angola have to pay close to 5 percent of the contract value in bribes in order to obtain government contracts. They also have to spend close to 3 percent of sales revenues on informal payments to deal with licenses and regulations. Moreover, the relationship between Sonangol (the national o i l company) and the government creates a conflict of interest and i s contrary to good practice in the management of public finances. For example, Sonangol carries out several functions that in other countries would be carried out by the treasury and the central bank, such as managing and servicing public debt and servingas sector r e g ~ l a t o r . ~
An interactive database o f governance indicators for 213 countries i s at www.worlbank.org/wbi/governancel World Bank. 2006. Angola Country Economic Memorandum: Oil, Broad-Based Growth, and Equity. Report 35362-AO.
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20. Angolas administrative capacity i s very low by international standards, limiting the ability of the state to deliver essential public services. Power i s centralized in the presidential administration, roles and functions o f ministries and other state agencies (including state-owned enterprises) are not clear, and the lines separating the state and private sectors are often blurred. Institutional fragmentation and complexity also severely impede budget planning, particularly translation o f strategic policy objectives into budget allocation decisions. Angolas poor governance and weak administrative capacity make the country an unattractive destination for investment, especially outside of the natural resources sector. 21. Angola has yet to develop a clear strategy to tackle issues of governance. Transparency and accountability in the management o f public resources remains low. In fact, Angola i s below the Sub-Saharan average on all six governance indicators tracked b y the World Bank Institute. Neither the Ministry of Finance nor the central bank i s able to perform effectively i t s oversight roles, including because some public resources are channeled through the office of the president and are not subject to their scrutiny or record keeping.
Nonetheless, some progress seems to have been made in improving governance 22. since 2002. According to indicators tracked b y the World Bank Institute, Angolas political stability, government effectiveness, and voice and accountability did likely improve between 2002 and 2005; control of corruption, regulatory quality, and rule of law may also have shown some improvement in the same period.
23.
Governments recent efforts on governance include: Auditing oil companies. Cost and fiscal audits of all o i l companies, including Sonangol, are conducted by internationally qualified auditors. The most recent corporate audit o f Sonangol i s for 2005. The 2003 audit-the most recent shared with the Bank-included qualifications, especially for downstream operations. Sonangol has engaged a consulting firm to help address these irregularities. Management o oil revenues. The Ministry o f Finance has created a separate account f at the central bank to deposit some o i l revenues as precautionary savings. However, rules for the use o f these revenues have not been defined. In April, 2006 government signed a contract with Aberdeen University Petroleum Economic Consultancy (AUPEC) to implement an oil revenue forecasting model, as recommended by IDA. Publishing oil company payments. Data on o i l company payments are reported in detail on the website of the Ministry of Finance, although with a lag4 and an unclear presentation. Oil tax administration. Government updated and simplified rules governing oil taxation in 2004. Under that law, o i l company taxes are based on self-assessment and independent audit o f returns. Government engaged AUPEC to help strengthen the administration o f this regime. The IMF completed in 2006 a fiscal report on standards and codes.
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Encouraging transparency in licensing. While not free from problems, the most recent licensing round (launched in December 2005 and completed in M a y 2006) was the most transparent in Angolas history, Strengthening the customs sewice. Government has prepared and adopted a customs code complying with international regulations and governments ability to collect customs revenue, detect trade fraud and evasion, and facilitate legitimate trade appears to have improved. Ratibing the United Nations Convention against Corruption. Government ratified the convention on August 29, 2006, b y which i t commits to a variety o f measures to combat corruption. Initiating work aimed at enacting anti-money laundering and combating terrorism financing legislation. The central bank, with Bank assistance, has started the work required to implement measures to combat money-laundering and financing o f terrorism.
24. Steps have been taken to improve public financial management, but progress has been slow. Government has started to strengthen the capacity o f the Ministry o f Finance to control expenditures and ring-fence the operations of Sonangol on behalf o f the treasury, but much more needs to be done. O f priority i s the phase out o f Sonangols quasi-fiscal operations. The Ministry of Finance acknowledges that it i s necessary to ring-fence the operations o f Sonangol on behalf o f the treasury. A second priority i s to separate the concessionaire and operator roles of Sonangol. However, the government and Sonangol have indicated that, due to institutional and technical limitations in the Ministries o f Finance and Petroleum, there w i l l be no change to the present configuration at least until 2010.
C.
25. Angola has one of the highest levels of income inequality in the world. Nearly one in four Angolans i s extremely poor, surviving on less than US$0.75 a day, and about 70 percent o f Angolans live on less than US$2 a day.5 The challenge for Angola now i s to ensure that i t s growing oil and other revenues are used effectively to dramatically reduce poverty and the gap between rich and poor. Although gross national income per capita i s US$1,980 (2006), income i s highly unequally distributed (Angola has a Gini coefficient o f 0.62). The richest 20 percent of the population controls 43 percent o f household expenditure, while the poorest 20 percent enjoy just 4.4 percent.6
26. Angolas social indicators are among the worst in the world. Life expectancy i s just 47 years. Malnutrition i s acute; about 45 percent of children under age 5 suffer from stunting (low height-for-age) and 31 percent are underweight. About one in four Angolan
World Bank. 2006. Angola Country Economic Memorandum: Oil, Broad-BasedGrowth, and Equity. Report 35362-AO. Very little reliable data exist on incidence, nature, and geographical distribution of poverty in Angola. A high priority i s to undertake a nationwide household survey to generate baseline data on poverty to underpin the development and implementation of a meaningful poverty reduction strategy.
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children die before their fifth birthday, 90 percent of whom perish due to malaria, diarrhea or respiratory tract infections. The maternal mortality rate (at 1,700 per 100,000 births) i s one o f the highest in Sub-Saharan Africa. Three in five people do not have access to safe water or sanitation. Primary school enrollment i s among the lowest in Africa; in the regions most affected b y the war, just 25 percent o f children are enrolled in primary school. Only 27 percent o f students who enter grade one complete grade four. The limited access to education has left 70 percent of adult men and 80 percent o f adult women unable to read, write, or perform basic computations. On average, women have less education, lower health status, and a heavier work load than men. Regional disparities in access to basic services are also substantial. For example, in the eastern provinces where the humanitarian needs are perhaps the most striking, distances to the nearest hospitals can sometime be more than 100 kilometers. Angola ranks 162 out o f 177 countries on the 2006 Human Development Index. 27. Despite massive oil revenues, Angola has made little progress towards attaining most MDGs (although data limitations prevent sound assessment of Angolas status with respect to the MDGs). Progress i s evident only towards the goals o f universal primary education and environmental sustainability. The proportion o f people with access to safe drinking water has also increased since the 1990s. In addition, the number of children immunized against measles and the proportion of births attended b y skilled birth attendants has risen, which should translate into better child and maternal health outcomes in the future. (See Annex 6 for more on Angolas progress towards the MDGs).
D.
28. Angola needs a much more vibrant and competitive private sector to diversify the economy and promote employment. With i t s diverse natural resources, climatic variability, and strategic location in Africa, Angola has potential to develop a diverse economy based on agriculture, manufactures, services and power, in addition to mineral resources. However, for a long period after independence Angola emphasized state control of resources, leaving little room for the private sector, a situation that i s now gradually changing. Angola scores poorly on international assessments o f investment climate. For example, the World BanMIFCs Doing Business report 2006 ranked Angola 156 of 175 countries in overall ease of doing business. A poor environment for investment has left Angola with few regionally or globally competitive businesses outside of the natural resources sector (99 percent o f Angolas exports comprise oil and diamonds). At the same time, the country imports a significant proportion o f i t s food requirements and nearly all of i t s capital and consumer goods.
Government recognizes the importance of attracting private investment, and is 29. taking steps to improve the investment climate. Government accepts that private sector investment and expertise are essential to create jobs, deliver services, and diversify the economy. To strengthen the investment climate, i t has adopted legislation to streamline the regulatory framework and clarify land rights and has improved customs procedures (reducing the average paperwork processing time from 25 days in 2000 to 5 in 2006). I t has also taken steps to improve access to financial services, including microfinance, by allowing new entrants into the market. Investments in infrastructure, including roads, railways, and electricity generation and transmission w i l l also improve the investment climate.
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30. However, much more needs to be done to promote private sector development. While the reform agenda i s potentially overwhelming, a well-sequenced package o f interventions would help make the process manageable. Priorities include legal reform addressing the nationalization o f private assets, simplification of business procedures; strengthening of the financial sector to increase access; opening of the trade regime; and modernization of tax and customs administrations. Other concerns include poor reliability, high costs and weak regulatory frameworks in the telecoms, transport and power sectors, as well as dated commercial and labor laws. The Bank-led investment climate assessment, the first ever to be conducted in Angola and currently nearing completion, w i l l form the basis for development o f a stronger private sector development strategy.
31. Angola prepared a draft Poverty Reduction Strategy Paper (ECP, Estratigia de Combate a Pobreza or Strategy to Combat Poverty) in December 2003. However, t h i s strategy, which covered 2004-07 did not anticipate the rapidly rising oil revenues o f the past few years and therefore the fiscal envelope available. Government i s finalizing an updated version of the ECP that covers 2006-08 and includes a forward-looking macroeconomic framework. The ECP proposes to implement a public expenditure program focusing on ten priority areas: (a) social reinsertion, (b) de-mining, (c) food security and rural development, (d) HIV/AIDS, (e) education, ( f ) health, (8) basic infrastructure, (h) employment and vocational training, (i) governance, and (j)macroeconomic management. In 2006, Angola prepared a 2025 vision document, presenting i t s long-term aspirations for consolidation o f peace and national reconciliation, sustainable development, macroeconomic and social stability, establishment of an integrated national economy, and reduction in inequalities. 32. Governments main objectives for the next two years are laid out in its bi-annual economic programs that support the preparation of the annual state budgets. The six main objectives o f the 2007-08 economic program are to consolidate peace, enhance national reconciliation, and improve security by extending state administration to all areas o f the country; bring rapid improvements in food security and living conditions for the most vulnerable and most war-affected groups, especially those suffering from malnutrition and disease; create safe and hospitable conditions for the return of displaced people to their regions o f origin; and, start rebuilding social services. These objectives w i l l be achieved b y delivering basic social services to urban and rural dwellers; improving transportation infrastructure; and adopting measures to stimulate the rural economy, such as improving the climate for investment in agriculture, mining, and rural industries. Large increases in investments in infrastructure (US$7 billion over the next three years) and a substantial increase o f social spending are forecast. 33. Rising oil revenues need to be managed wisely. Increasing resources from o i l can help Angola address i t s many reconstruction and human development needs. However, if
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such resources are to be used effectively, government w i l l have to meet challenges commonly associated with resource-dependent economies. A first such challenge i s to foster good governance in a context where well-connected people can benefit from a lack o f transparency and accountability. A second i s to avoid waste associated with the rapid increase in spending, often due to an inadequate prioritization and assessment of the economic returns o f projects. Another challenge i s to manage opportunities for borrowing so as to avoid increasing debt distress risks. It i s also a challenge to avoid the potential loss of competitiveness of non-oil exports, which often arises from increases in the exchange rate due to inflows o f revenues from oil-the so-called Dutch Disease. A final challenge i s to maintain stability in public spending, despite volatility in oil revenues. The Bank w i l l continue to work with government on these challenges, including in collaboration with development partners.
34. T o make progress towards the MDGs, Angola will have to substantially increase its spending on education and health services and on basic infrastructure. Due to high o i l prices, government has much greater resources than appeared available a few years ago, and as a result, has significantly increased public spending on social services and infrastructure. However, the countrys development needs and capacity constraints are enormous, and policies and vehicles to underpin an effective poverty alleviation program are s t i l l being developed. The Bank can play an important role in Angola b y helping government and others to address capacity constraints, and to define and implement effective growth and poverty alleviation strategies.
3.
A.
35.
Implementation of the 2005-06 Interim Strategy Interim Strategy covered an eighteen month period, January 2005 to June 2006.
I t aimed to support governance and capacity building, provision o f basic services, emergency infrastructure rehabilitation, and policy reforms. I t rested on three pillars: (a) enhancing
governance and strengthening capacity, (b) rehabilitating infrastructure and providing basic services, and (c) preparing the ground for broad-based equitable growth.
36. Implementation of the Interim Strategy was moderately satisfactory. Most I S N triggers have been met (see Annex 8). All projects except one are being implemented satisfactorily, although with some initial delays (Table 1). No projects have had problems with fiduciary management or with counterpart funding. However, the portfolio i s young and remains fragile with three potential problem projects, and one actual problem project (Le., Economic Management Technical Assistance, which i s being restruct~red).~ Risks are being mitigated through close monitoring and capacity building, especially for procurement, financial management, and monitoring and evaluation.
A potential problem project i s defined as a project having three flags or more. All projects in Angola get two flags automatically, the country flag and country record flag. As a result, delayed effectiveness for instance would automatically raise a third flag and the project becomes a potential problem project.
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Economic Management Technical Assistance Credit 37440 Angola Demobilization and Reintegration Grant H0270
16.6120.0
Dec. 4, 2003
8.5
53%
MU
33.0190.0
March 2, 2004
19
59%
M S
M S
55.01110.0
51.0
93%
12.5
25%
M S
21.0l21.0
3 .O
14.3%
TOTAL
S: Satisfactory,
176.31292.0
94.0
53 %
u:t
satisfactory
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37. There has been progress in addressing the recommendations of analytical and advisory work. The status and next steps for the recently completed or ongoing analytical work are presented in Annex 9. Government has implemented some of the recommendations of analytical and advisory work on macroeconomic management and public finance management. It has also adopted many o f the recommendations of the oil diagnostic study. I t i s expected that government w i l l implement recommendations o f the recent Angola Country Economic Memorandum, which was launched in Luanda in November 2006. However, more needs to be done to disseminate the findings of the analytical and advisory work, including through policy-focused notes.
38. Involvement of the International Finance Corporation (IFC) in Angola i s modest, but growing. The IFC has been building i t s portfolio of investment in Angola for a total o f $11 million, and as o f end 2006 i t had three major investments. In addition, the IFC has assisted with trade finance and has undertaken analytical work to identify the main constraints to private investment. IFC i s currently exploring potential investments in infrastructure, general manufacturing, and private education. IFC also expects to facilitate private sector participation in infrastructure, help with capital market development, and advise the government on privatization and structuring concessions. In addition, i t w i l l step up i t s technical assistance to entrepreneurs of small and medium-sized businesses through the restructured African Project Development Facility.
39. Engagement of the Multilateral Investment Guarantee Agency ( M I G A ) i s modest, but potentially important. MIGA has provided guarantees to two projects in Angola since 2001, for a total of $1 million. MIGAs investment guarantees could become increasingly important in Angola, given the perceived political risks of doing business there. However, MIGA has indicated that i t w i l l limit i t s engagement in Angola until two small but long-standing investment disputes that MIGA has been asked to mediate are settled.
B.
40. Although country circumstances have changed since the previous ISN, Bank engagement continues to be important to Angola. Angolas high o i l revenues have enabled i t to attract considerable non-concessional resources, thereby changing the role of IDA financing, with increased emphasis on IDAS ability to transfer knowledge and cross-country experience along with i t s finance. The Independent Evaluation Groups 2007 Country Assistance Evaluation argued in favor of engagement, within the general frame of supporting the government and other national stakeholders in the preparation and implementation of a medium-term government investment program. ... [Engagement] would make i t possible to provide policy advice and technical assistance and deliver potentially large benefits to poor communities from well-designed and well-executed local programs. The Bank has unique knowledge and analytical capacity to provide government with policy advice and support, which can be used to improve the efficiency o f a broad range development activities in Angola, whether Bank-supported or not. Indeed Angolas rising o i l revenues mean that the main benefit of IDA involvement i s the value added i t brings to programs and projects that are mostly or solely government financed. T h i s i s consistent with the authorities preference for - 12-
the transfer of knowledge and skills through analytical work, policy advice and investment projects, which they see as more effective than stand-alone capacity development and technical assistance projects. Finally, the Banks ability to leverage partnerships should help improve the effectiveness of aid b y ensuring coherence of overall donor support and the development o f a results-focused approach in line with governments development program.
Significant non-concessional resources to finance Angolas public expenditure 4 1. program have been borrowed from non-OECD partners, including China and Brazil (Annex 7). Access to such resources has enabled government to predict that a skeleton infrastructure w i l l be restored b y 2008, which i t regards as a prerequisite to holding legislative and presidential elections. At the same time the government recognizes the benefits of accessing funds from traditional donors, especially the World Bank, in part because of the legitimacy gained by engaging with the Bank Group and other multilateral institutions, which facilitates access to private sector and other financing sources.
42. A n Interim Strategy Note i s prepared at this time rather than a longer-term country assistance strategy for two reasons. First, Angola i s entering a two-year period of heightened political activity in that legislative elections are slated for 2008 and presidential elections in 2009. This pre-election period i s likely to be characterized by limited policy reform. Second, Angolas rapidly growing o i l revenues, willingness o f alternative lenders to provide funds, rapidly increasing per capita income, and IDA eligibility and IBRD creditworthiness issues (see Box 1) mean that the Banks relationship with Angola i s likely to evolve significantly in the medium-term. Engagement during the period of this interim strategy w i l l allow time to clarify some of these issues, enable government to make further progress on implementation of the ECP, and provide the opportunity for government and the Bank to agree on a longer-term assistance strategy appropriate to the countrys needs and the World Bank Groups full range of products and skills.
Box 1: IDA Eligibility and Creditworthiness
Angolas 2006 gross national income per capita of US$1,980 i s above the IDA operational cut-off of US$1,025. If GNI stays at this level, Angola will have been above the operational cut-off for more than two consecutive years by FY08. Angolas debt ratios have improved substantially over the last two years owing to higher oil revenues, and will continue to do so, despite a new non-concessional US$9.7 billion line of credit from China, if oil revenues maintain their upward trend and Angola does not undertake additional nonconcessional external borrowing. However, Angolas heavy reliance on oil means that i t i s vulnerable to oil price volatility. Angola i s presently not creditworthy for IBRD.
C.
43. The Banks 2007-09 Interim Strategy for Angola i s organized around three pillars: (a) strengthening public sector management and government institutional capacity, (b) supporting the rebuilding of critical infrastructure and the improvement of service delivery for poverty reduction, and (c) promoting growth of non-mineral sectors. These pillars w i l l be implemented through the continuation of ongoing programs and analytic work, as well as through new activities. Each pillar has a series of identified desired outcomes (see results framework, Annex l), which w i l l be monitored by the Bank and government. New analytical and advisory work and new programs are presented in Tables 2 and 3.
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Ongoing activities and their contributions to outcomes are noted below and in the results framework.
Emergency Multisector Recovery 2 Subtotal FYOS (Julv 2007-June 2008) Smallholder Agricultural Development Water Sector Institutional Development Fourth Social Action Fund Subtotal FY09 (July 2008-June 2009) Public Financial Management Health Infrastructure Institutional Support Regional Linkages Subtotal Total FY07-09
102 102
30 50 38 118
15 20 25 10
70 290
44. In addition to being aligned with the Africa Action Plan (Box 2), lending and non-lending interventions will reflect the lessons learned from Bank and other
FY08 and FY09 figures are indicative. Actual I D A available will depend, among other things, on (a) Angolas own performance with respect to the country policy and institutional assessment and the ongoing portfolio, (b) Angolas performance on the previous criteria relative to that of other IDA recipients, (c) the amount o f overall resources available to IDA, including IDA 15, and (d) changes in the l i s t o f active IDAeligible countries. In addition, Angolas allocations will be affected by the phasing-out o f the exceptional postconflict allocation.
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experience in Angola, from other fragile states emerging from conflict, and from other oil-rich countries. Lessons from a range of recent Bank studies have been incorporated in the proposed program for Angola. These include: (a) being selective in areas o f intervention to avoid overwhelming country capacity, (b) using projects and analytical work to transfer knowledge and foster development of effective national systems, (c) focusing in all interventions on measures to improve public financial management, (d) supporting measures to strengthen governance at different levels of government, (e) coordinating work with other development partners to avoid duplication, and (f) balancing support to build capacity o f the state with support for civil society and the private sector. In addition, analytical work has deepened Bank and government knowledge o f how public resources are used and has recommended measures to improve their accountability and impact. These studies have informed the design of both technical assistance operations and o f sector projects. Finally, the I S N includes a results framework (Annex 1) that w i l l also facilitate the drawing of lessons and consequent adaptation to programs and their implementation.
45. The challenges of governance in Angola are significant (see Box 3), and consequently measures to promote good governance will be a central theme of the ISN. One such focus w i l l be on helping government strengthen i t s capability to perform i t s functions, i t s responsiveness to needs of Angolans through delivery o f services, and i t s accountability to citizens.
46. Another focus of governance will continue to be mineral resource management and transparency. The ISN program builds on the recommendations of the Banks 2005 public expenditure management and financial assessment review (PEMFAR), particularly rolling out an integrated financial management system and upgrading the revenue management capability in Ministry of Finance (see Annex 10 for details of the review). The Bank has also supported activities aimed at public disclosure of oil revenues and transparency in the operations of Sonangol. The public financial management agenda has been supported in parallel with technical assistance on petroleum revenue management and transparency in the oil sector. This has included discussions on the Extractive Industry Transparency Initiative (EITI), in the first instance related to the oil sector, although Angola has yet to commit to implement i t (see Annex 5 for Angolas status with respect to EITI).
47. This I S N will continue to emphasize governance in all lending and non-lending activities. The Bank w i l l incorporate good governance and anticorruption measures in all i t s projects. (Examples of how this w i l l be done in new operations specifically with reference to public financial management and building on ongoing work, are presented in Box 4.) T h i s includes paying careful attention to safeguard measures during program design and prepara-
- 15-
tion, and promoting transparency and communication with government officials and nonstate actors about financial issues, procurement, and project management. The Bank w i l l work inclose partnership with other donors in Angola in supporting good governance and anticorruption measures and in monitoring corruption.
Box 3: Governance Challenges in Angola: Questions and Answers
1. How severe are the challenges posed by poor governance and corruption for development in Angola? The challenges posed by poor governance and corruption for development are severe in Angola. This I S N i s placing the issues o f governance at the centre o f the strategy, and focuses the Bank response on building capacity, responsiveness, and accountability. 2. Where are key problems concentrated? What are the 'entry points' for governance reform? The entry points for governance reform are in both the core and sectoral areas. The Ministry o f Finance and the central bank are both interested in managing all resources more transparently and efficiently. The Ministry o f Finance i s also taking steps to improve the management o f o i l revenues. The sectoral ministries involved in Bank-supported projects have been implementing the projects in compliance with Bank fiduciary safeguards and are strengthening their management, fiduciary and monitoring systems.
3.
How committed is government to good governance? Does it have a track record ofprogress?
The commitment o f government in general to improved governance i s uncertain and its track record weak However, some top government officials have indicated a desire to proactively tackle the problem, and all support the good governance measures included in projects. The I S N proposes measures at both the Ministry o f Finance and the sector ministries to further improve public financial management. I t also proposes activities to create demand for better governance among citizens.
4. What is the risk that governance will deteriorate during the period o the ISN? f Governance i s not expected to deteriorate during the I S N period, although the 2008-9 elections may pose some risk if it diffuses government's attention and w i l l to continue strengthening governance. The Bank w i l l monitor the situation closely and w i l l scale back assistance if poor governance makes i t unlikely that the Bank can achieve i t s objectives.
5. Does financial engagementpose a reputational risk for the Bank? Financial engagement poses a reputational risk to the Bank. T o counter this, the Bank w i l l continue to engage broadly with development partners to discuss relevant issues, to assess risks, and to agree on a common approach. The Bank w i l l also engage with Angolan civil society, including think tanks and academic institutes, to gain insight into possible reputational risks and to identify measures to mitigate them. The Bank w i l l continue to maintain strong oversight o f the use o f its funds. f What is the risk o poor governance to Bank projects? The risk o f poor governance to Bank projects i s moderate because o f the strong procurement and financial management safeguards that are part o f all projects. These measures are being reviewed and strengthened as needed for all future Bank-financed projects. The Bank w i l l draw on i t s experiences to advise government on effective system-wide approaches to good governance.
6.
48.
Planned and future Bank-funded activities will be scrutinized to ensure that they promote the wider objective of improving governance. To help with this objective, the Bank i s recruiting a governance adviser with support from DFID to strengthen the capacity o f i t s country office to handle issues o f governance and public financial management. The adviser w i l l work with task team leaders, the government, development partners, and nonstate stakeholders in designing and implementing measures to strengthen public financial management and other aspects of governance.
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D.
49. In addition to continuing five ongoing projects and some analytical work, this I S N proposes eight new investment operations and a package of analytical and advisory work. New project support w i l l target areas where the Bank i s working in Angola-such as infrastructure, agriculture and water services, public goods and service delivery at local level, and public sector management-and where the foundations for effective support to institutions and governance have been created (see Table 2). Analytical work (see Table 3) w i l l deepen understanding o f the political economy and public financial management (including debt management), challenges to private sector development, functioning of the financial sector, and opportunities to promote regional integration. In addition to formal studies and workshops, the analytical program w i l l produce policy notes on economic and poverty issues to better inform the policy debate. The program by pillar follows.
Pillur 1: Strengtheningpublic sector management and government institutional capacity
50. Expected results from the Bank program. Support from the Bank i s expected to help strengthen public sector management and capacity, with a particular emphasis on financial management and public investment planning and management. The Bank program w i l l address two major constraints in these areas: weak institutional capacity, and a lack o f information on the design and performance of public expenditure programs.
Box 4: Bank-supported Projects Emphasize ImprovedPublic Financial Management
Emergency Multisector Recovery Program 1 and 2. While following a ring-fenced approach to ensure that Bank funds are not misused, the program w i l l help to develop capacity o f key ministries and agencies for transparent and sound financial management through both formal training programs and involvement o f staff in the daily activities o f the project management and implementation unit. The focus i s on procurement and financial management, aimed at establishing modem financial management systems for use throughout participating ministries and agencies. The project w i l l also assist two ministries (energy and water) to prepare to conduct public expenditure tracking surveys. Finally, in close coordination with the Third Social Action Fund Project and the U.N.Capital Development Fund, the program w i l l help to support the establishment o f central to local government fiscal transfer mechanisms. Social Action Fund Project. Building o n the successful experience o f the ongoing Third Social Action Fund project, all activities proposed for financing through the project w i l l be reviewed at the community and local government levels. Each step o f the procurement processes w i l l be open to scrutiny by beneficiary communities, with records o f purchases made and funds used available to the public. In addition, the project w i l l strengthen the planning and expenditure management capacities o f subnational governments. I t i s expected that the transparent, inclusive approach taken by the project w i l l be mainstreamed in operations o f the government. Smallholder Agriculture Development Project. Building on work started under the Emergency Multisector Recovery Program 1, t h i s project w i l l help to develop capacity of the Ministry o f Agriculture at the central and local levels, and o f other stakeholders to deliver the variety o f services farmers need to produce and market agricultural goods. Although following a ring-fenced approach to ensure that Bank funds are used appropriately, the project w i l l help the ministry to strengthen i t s system o f fiduciary management for future broad application. Water Sector Institutional Development Project. Also building on work started under the Emergency Multisector Recovery Program 1, the proposed Water Institutional Development Project w i l l focus on creating regulatory and institutional frameworks for delivery o f water and sanitation services. I t w i l l finance technical assistance to help the water utilities in three provincial capitals to provide water services o n a commercial basis, fully covering costs for operations and maintenance. This i s intended to strengthen the transparency and sustainability o f operations.
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51. Responding t o lessons. The Bank has completed a number of analytic and advisory activities, such as the PEMFAR, and worked through projects such as the Economic Management Technical Assistance Project, that have shown the effectiveness of working with government staff specifically to enhance the effectiveness o f the public sector. This I S N reflects this lesson b y emphasizing strong systems, processes, and training; defining goals and specifying monitoring indicators and monitoring and evaluation systems to track progress; encouraging public disclosure o f program activities and budgets; and preparing key pieces of analytical work to support policy dialogue and program design.
52.
e
e
Proposed I S N activities: Ongoing projects-Economic Management Technical Assistance, Emergency, Multisector Recovery 1, Third Social Action Fund. Ongoing analytical and advisory work-Public Expenditure Review (FY07), Country Economic Memorandum (FY07), Investment Climate Assessment (FY07), Diagnostic Trade Integrated Study (FY07). New projects-Emergency Multisector Recovery 2 (FY07), Fourth Social Action Fund (FY08), Water Institutional Development (FY08), Public Financial Management (FY09), Infrastructure Institutional Support (FY09). New analytical and advisory work-Capacity development strategy (FY08), petroleum and diamond sector policy dialogue and advisory work (FY08), debt management (FY09), policy notes (FY08 and FY09), Financial Sector Assessment Program (FY09). Among other things, the proposed program will: Help conduct a public expenditure management and financial accountability (PEFA) review, to serve as the basis for a Public Financial Management Project (Economic Management Technical Assistance). Strengthen the capacity of government in project management, procurement and financial management, and expenditure tracking surveys (Emergency Multisector Recovery 1 and 2). Reinforce subnational government and community capacity to plan and manage their long-term development investments, including through participatory methods and citizen oversight (Third and Fourth Social Action Funds). Create regulatory and institutional frameworks for delivery of water and sanitation services (Water Sector Institutional Development). Continue to engage in policy dialogue and non-lending technical assistance in the o i l and diamond sectors. Provide assistance in the mining sector, particularlyin the context of the planned revision o f the mining code and the EITI.
53.
e
e e e
Pillar 2: Supporting the rebuilding o critical infrastructure and the improvement o service f f delivery for poverty reduction
Expected results f r o m the B a n k program. Support from the Bank w i l l help 54. government to better plan and program the rebuilding of critical infrastructure and improve
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access to infrastructure and to basic services, including through community-driven approaches. I t w i l l also assist demobilized ex-combatants to establish their livelihoods and reintegrate into civilian life. The Bank program w i l l address the constraints o f weak institutional capacity to manage policy and institutional reforms and investment programs, and some specific challenges associated with HIV/AIDS, malaria, and tuberculosis, and with demobilization and reintegration. Responding to lessons. The I S N program reflects several lessons o f experience. The first lesson, pertaining in particular to fragile states, i s to focus assistance on rehabilitating key infrastructural services (roads, electricity, water, and urban infrastructure) that w i l l allow business to resume and people to pursue their livelihoods. The second i s to strengthen essential social services to build human capital. The third i s to use projects to transfer skills and knowledge for development management to the government. Proposed I S N activities: Ongoing projects-Emergency Multisector Recovery 1, Angola Demobilization and Reintegration, Third Social Action Fund, HIV/AIDS, Malaria, Tuberculosis Control. Ongoing analytical and advisory work-Public Expenditure Review (FY07), Country Economic Memorandum (FY07), Investment Climate Assessment (FY07), Diagnostic Trade Integrated Study (FY07) New projects-Emergency Multisector Recovery 2 (FY07), Fourth Social Action Fund (FY08), Water Institutional Development (FY08), Health (FY09), Infrastructure Institutional Support (FY09), Regional Linkages (FY09). New analytical and advisory work-Capacity needs assessment (FY08), policy notes (FY08 and FY09), regional transport study (FY08). Among other things, the proposed program will: Accelerate comprehensive reconstruction in six o f the most war-affected provinces, while also improving the fiduciary and project management s k i l l s of the main sector ministries (Emergency Multisector Recovery 1 and 2). Strengthen local government and citizens participation in program design and monitoring (Third and Fourth Social Action Fund). Reinforce critical programs in health, including HIV/AIDS, and in water delivery (HIV/AIDS, Malaria, and Tuberculosis, Water Institutional Development, Health projects; capacity development strategy and policy notes). Continue the reintegration o f ex-combatants into socially and economically productive roles (Angola Demobilization and Reintegration).
55.
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59. Responding to lessons. A key lesson that the program reflects i s that a strong private sector i s central to diversification and growth, and that an important role o f government i s to establish an environment that facilitates this. Specific activities reflecting this lesson focus on the critical constraints to livelihoods (such as seeds and rural roads) for quick wins, while building institutional capacity to undertake longer-term initiatives. 60.
0 0
Proposed I S N activities: Ongoing projects-Emergency Multisector Recovery 1. Ongoing analytical and advisory work-Public Expenditure Review (FY07), Country Economic Memorandum (FY07), Investment Climate Assessment (FY07), Diagnostic Trade Integration Study (FY07). New projects-Emergency Multisector Recovery 2 (Ey07), Smallholder Agriculture Development (FY08), Infrastructure Institutional Support (EyO9), Regional Linkages (FY09). New analytical and advisory work-policy notes (FY08 and FY09), regional transport study (FY08), Financial Sector Assessment Program (FY09). Among other things, the proposed program will: Help revitalize agricultural productivity and competitiveness (Emergency Multisector Recovery 1 and 2, Smallholder Agriculture Development). Strengthen infrastructure services in non-mining areas, which w i l l facilitate commerce and development (Emergency Multisector Recovery 1 and 2, Infrastructure Institutional Support, Regional Linkages). Promote improvements in the investment climate through deeper collaboration o f IDA and the IFC, including through joint review o f regulations, licenses and permits, and a collaborative program to support small and medium enterprise entrepreneurship. Support improvements in the financial sector (Economic Management Technical Assistance, Financial Sector Assessment Program, and Financial Sector Reform and Strengthening Initiative (FIRST), a multidonor program to promote development of non-banking financial institutions and to improve the quality and availability o f information necessary for financial transactions). Build capacity for trade (with grant finance from the Enhanced Integrated Framework, following dissemination of the Trade Diagnostic Trade Integration Study).
Lending Scenarios
61.
0
E.
62. The terms of assistance to Angola f o r FY07 and FYOS will be IDA hard terms. These terms are 10 years grace, 35-yeG total maturity, plus an interest rate 200 basis points below the IBRD lending rate in fixed-rate terms.g Based on the significant level o f nonconcessional borrowing contracted by Angola, it i s the first country determined to be in
The interest rate applied to hard-term credits i s determined annually. The applicable hard-tern interest rate for FY07 i s 4.0 percent; normal IDA commitment charges apply.
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violation of the Banks non-concessional borrowing policy.o As a result, while current IDA volumes w i l l be maintained in consideration o f the limited effects of IDA financing on the countrys debt sustainability, the financing terms under the remainder of IDA14 w i l l be hardened to hard terms with the lowest possible grant element (11 percent). In addition, the authorities are expected to submit data on debt on a timely basis to comply with the Banks debt reporting requirements. 63. The level and nature of Bank assistance will depend on country performance. IDA allocations w i l l be determined annually based on the performance-based allocation system, which includes among other things: (a) Angolas own performance as reflected in the Banks country policy and institutional assessment, (b) measures of annual portfolio performance, (c) the performance of all IDA borrowers, (d) the size of the available IDA envelope, and (e) changes in the l i s t of active IDA-eligible countries. As a post-conflict country, Angola has been receiving larger IDA allocations than i t s performance-based allocation norm since FY03. FY07 i s the first year of a gradual three-year phase-out of this exceptional access, which w i l l bring the country back to a norm-based allocation in FY 10. 64. I D A availability for Angola depends in part on government performance. Factors related to government performance include: (a) clear commitment to improved public financial management and governance; (b) demonstrated w i l l to address inequities based on gender, region, and other forms of vulnerability; and (c) good execution of the existing portfolio. Funding available to Angola w i l l also increase in the future if the country becomes eligible for IBRD lending. IFC and MIGA could increase their engagement if there i s rising demand for their services b y businesses interested in investing in Angola. 65. The Bank may lower commitments during the fiscal year if government performance in key areas deteriorates. I t may lower commitments if (a) performance in economic management deteriorates significantly, (b) civil conflict resurges, (c) commitment to improved governance and enhanced public financial management wanes, or (d) implementation of the Bank-supported program deteriorates significantly. Complete disengagement even in adverse circumstances i s unlikely. The Bank w i l l engage in dialogue with the government as early as possible to encourage adoption of good policies and to signal the consequences of continued deterioration. The Bank w i l l consult widely with other development partners, and Angolan civil society, before acting to identify the most effective means of achieving i t s development objectives in Angola. In the low case, Bank assistance w i l l be targeted to basic infrastructure and social services-such as water supply, health facilities, schools, and rural roads-some of which w i l l be delivered through communitydriven development approaches that also help to develop the capacity and accountability of local government. The Bank w i l l also continue i t s program o f analytical and advisory work, with a focus on public financial management, poverty and social impact analyses, and other
The Bank presented a paper to its Board on July 6,2006 proposing policies to discourage IDA grant recipients such as Angola from contracting non-concessional debt (Dealing with the Free Rider Problem in IDA14 Grant Recipient and Multilateral Debt Relief Initiative Countries. Report 36563, Resource Mobilization Department, June 19,2006). The application of the new policy to the case of Angola (IDASNon-Concessional Borrowing Policy (NCBP): the case o Angola ) was discussed by Executive Directors on April 5, 2007. f 11 Beyond FY08 (the last year of IDA 14), the relevant IDA terms for Angola will be determined on an IDA replenishment by replenishment basis.
lo
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topics aimed at creating the foundation for a future scale up of assistance, once commitment to goodgovernance improves.
F.
66. A recent assessment of capacity development across Africa rated the current status of capacity in Angola as moderate.12 The Bank i s supporting capacity development in Angola in a range of actions dealing with public financial management, community and local service delivery, monitoring and evaluation, statistics, and so on. In collaboration with government and other partners, the Bank w i l l prepare a capacity development strategy. IDA, the World Bank Institute, the Global Development Learning Network (funded primarily b y the Government o f Portugal), and the IFC are all active in these capacity development efforts. 67. Delivering the program effectively will require additional staff based in Angola or elsewhere in the region and strong partnerships with others. The Bank i s taking action to increase i t s effectiveness in Angola, in accordance with the lessons of the Banks 2007 Strengthening the World Banks Rapid Response and Long-term Engagement in Fragile States. It i s bolstering the capacity o f i t s Angola country office with the addition of staff and donor-funded appointments who w i l l focus on governance, public sector management, private sector development, and program management. In addition, it w i l l continue to access a network o f staff with experience and expertise in supporting development in fragile states, including experts on procurement, financial management and legal matters. G.
Partnerships and Participation
68. The Bank will also leverage its support by working in close partnership with other stakeholders in Angolas future. Given the declining importance of finance from OECD partners in Angola, imaginative approaches to partnerships are needed to ensure that Bank and others resources are used as effectively as possible. This w i l l require closer collaboration with stakeholders in Angolas future, including other donors, the private sector, civil society organizations, and Angolan universities and think tanks. 69. However, development partner engagement in Angola i s modest. Donor engagement in Angola during the long years of civil conflict was limited to humanitarian assistance, support for social services, and promotion o f good governance and democracy. Since 2002, some development partners have broadened their support for economic recovery and development. However, partner aid i s modest and some i s channeled outside o f government structures. Some bilateral partners have recently indicated an intention to scale back their financial assistance, due to concerns about governance and increasing availability to government of other sources of funds, including o i l revenue.
Development partners are focusing on building institutional capacity in their programs to foster good governance, and to ensure that funds are managed transparently and used effectively for their intended purposes. Partners investment funds are
World Bank, Capacity Development in Africa-Management Action Plan (2006).
70.
- 22 -
targeting social services, demining, and strengthening macroeconomic management and statistical systems. Some bilateral partners are promoting development of civil society organizations so that over the medium term they can more effectively act as institutions of accountability, strengthening the checks and balances in society and on government performance. (Areas of partner engagement are summarized in Table 4.) Two particular challenges face development partners: the need to strengthen collaboration and alignment among themselves, even while leadership structures are weak; and working out how to engage effectively with non-OECD partners. The Bank and the UNDP are co-leaders of donor harmonization efforts.
Implementation of the Banks interim strategy will require deepening partnerships with civil society organizations and the private sector. The Bank w i l l find new and more sustainable ways o f engaging with nonstate actors. I t w i l l consult regularly with civil society organizations, universities, professional associations and the private sector on Bank strategies and activities Areas o f possible collaboration include the proposed financial sector assessment, follow-up to the investment climate assessment, and community and social development. Table 4: Partnerships in Supporting Angolas Development Program
7 1.
I World Bank, Afiican Development I Czech Republic, EC, France, Italy, Japan, I Netherlands, Norway, Portugal, Spain 1 Bank,UN I Norway, Portugal, U.S. I World Bank, UN
Bank
- 23 -
72. Reflecting the need for broad partnerships, the Bank consulted on this proposed I S N with a range of stakeholders. The main findings o f the consultations are in Box 5.
Box 5: I S N Consultations with Partners-What We Heard
I S N priorities should be infrastructure, basic services, and agriculture (government). The Bank must play a key role in building capacity, especially o f project planning, management, budgeting, and procurement (government, development partners, civil society organizations). Despite large bilateral lending, the Bank s t i l l has a role to play in Angola, especially in knowledge sharing, but also in delivery o f investment projects (development partners). Prioritizing, planning, and monitoring progress i s very difficult due to weak government statistical capacity. The Bank should support such efforts (development partners, civil society organizations). Governance should be a priority for the Bank, but not just in terms o f accountability and transparency, but also in building capacity (development partners, government). Need to increase support to rural areas, especially in helping farmers reach markets (civil society organizations). Bank has analytical credibility. I t can use the dissemination o f research as a vehicle for better donor harmonization, which i s much needed (civil society organizations, development partners). Dissemination o f information tends to be concentrated in Luanda; the Bank needs to make greater efforts to reach out further (civil society organizations).
Source: Consultations between October 17 and November 11, 2006, in Luanda and in Huambo, and individual meetings with government officials, civil society organizations, and development partners.
H.
73. The Bank will track progress in implementing the I S N through a results framework (Annex 1). Recognizing that the full impact of the package of Bank support (policy advice, partnerships, analytical activities, and finance) i s difficult to measure, the effectiveness o f the Banks assistance in Angola w i l l be assessed, in broad terms, by the progress the country makes in achieving i t s development objectives, including the MDGs. The Bank w i l l rely to the extent possible on government data to track progress toward these broad goals. However, as government data in Angola are o f highly variable quality and often produced irregularly, the Bank and other development partners w i l l support government efforts to improve collection and analysis of economic, social, and poverty data. Recognizing that building statistical capacity i s a long-term process, the Bank will also make use of indicators tracked b y nongovernmental sources, such as those o f the Doing Business surveys. Periodic portfolio reviews w i l l provide early feedback on both implementation progress and impact o f Bank-assisted projects and non-lending support.
74. Implementation of the 2007-09 I S N faces six major risks. Angola i s considered a high risk country in which to do business due to i t s poor governance and weak institutional capacity. The Bank w i l l implement specific measures to mitigate the risks. Specific risks and mitigation measures include:
- 24 -
Description of risk
Angolas huge revenues from o i l could result in an overvalued exchange rate that reduces the competitiveness o f non-oil exports, wasteful public spending, and the contracting o f excessive external debt. Maintaining stability in public spending in the face o f volatile o i l revenues i s another challenge. Failure to make progress with building an effective, stable, transparent, and inclusive state could lead to growing discontent, unrest, and a return to conflict, reversing Angolas recent gains. Holding elections w i l l be an important milestone towards the goal o f building an effective state.
Risk rating
S
Mitigation measures
The Bank, the IMF, and other partners w i l l 0 Maintain an active dialogue on the issues. 0 Help to build,the capacity of government for improved expenditure and debt management, project analysis, exchange rate management, administration o f revenues, and other macro issues. The Bank, in close collaboration with other development partners, will: Provide support in a range o f areas to build institutional and human resource capacity for widely shared growth. 0 Other development partners w i l l engage in dialogue on the political transition and provide government with assistance i t may request to hold elections. If instability becomes severe, the Bank w i l l work with other partners to identify a collective response. It w i l l scale back or suspend financial assistance, if the situation warrants. Drawing on its new governance and anticorruption strategy, the Bank, in close collaboration with other development partners, will: Help build capacity o f government for sound public financial management through operations and analytical and advisory work. Help enhance institutional and human resource capacity for improved revenue and expenditure management through dialogue and nonlending technical assistance in the petroleum sector. 0 Support opportunities for dialogue between government and other stakeholders on petroleum sector issues. 0 Build capacity o f civil society organizations to effectively play an oversight role, and continue to
Weak capacity for public sector management and systemic corruption could prevent effective use of resources, discourage private sector investment, and harm the Angolas external credibility.
- 25 -
Risk factors
Description of risk
Risk rating
Mitigationmeasures
stress the importance o f civil society and the private sector in monitoring and evaluation. Incorporate anticorruption measures in all Bank-financed projects, taking a ring-fenced approach until capacity in government for sound fiduciary management can be built. Scale back or suspend financial assistance if governance deteriorates to the extent that the Bank could not be assured that i t s assistance program would meet i t s objectives, and thereafter focus on analytical and advisory services until conditions improve sufficiently to make fuller engagement worthwhile. The Bank will: 0 Focus on implementing the Capacity Development in Africa Management Action Plan to ensure that i t s support for Angola in t h i s area i s as effective as possible. Coordinate closely with partners who are also providing assistance to build government capacity for policy analysis, program planning, public financial management, and procurement. Engage with nontraditional donors in this area. The Bank w i l l in collaboration with other development partners: 0 Incorporate appropriate strategies to handle HIV/AIDS in all i t s operations and activities. 0 Help the government to implement strategies to prevent the spread o f the disease, to treat those who are infected, and to assist people who are affected. The Bank and other partners will: Help to enhance the capacity o f government to better manage i t s o i l revenues, including through the possible establishment o f an o i l fund so that expenditures can be smoothed and resources are available for the time when
Capacity constraints
Weak capacity to manage projects could lead to waste and reduce the effectiveness o f available resources.
HIVIAIDS
External factors
Angola i s exceptionally vulnerable to shifts in the global price o f oil, given that o i l accounts for about 55 percent o f GDP and 96 percent o f exports. A return to the l o w o i l prices o f the early 2000s would seriously disrupt Angolas plans to reconstruct i t s infrastructure and
- 26 -
Risk
factors
Description of risk
revitalize its economy.
Risk rating
Mitigation measures
revenues inevitably decline. Encourage government to diversify the economy and improve i t s climate for investment in non-mineral areas through sound macro management, better infrastructure, streamlined licensing and the regulatory framework, and improved institutional and human capacity.
B.
Conclusion
Angola i s at an important stage in its progress from war-torn state to stable democracy with the potential to rapidly reduce poverty, and to become an engine of growth for the region. The proposed Bank program has been designed to support this transition. Building on lessons learned from other fragile states, it w i l l support improved public sector management and governance, rehabilitation of critical infrastructure and delivery o f social services for quick wins, and promotion of the non-mineral economy to set the stage for long-term sustainable growth. To maximize the likelihood that i t s program i s effective, the Bank w i l l work in close partnership with other development partners, including with non-OECD partners, with Angolan civil society, with the private sector, and with other stakeholders in Angolas future. With the right policies and programs, Angola can progress rapidly toward the MDGs and can lay the foundations for future prosperity. The Bank can help the country select and implement such policies and programs.
75.
- 27 -
C .0
c)
$ $
r
E O
as
~ ~ _ _ _
~~~~
2003
2004
2005
Est.
2006
Proj.
2007
Proj.
(Percentage change, except where indicated) National income and prices Real GDP Oil sector Non-oil sector GDP per capita (in U.S. dollars) GNDl per capita (in US. dollars) Consumer price index (annual average) Consumer price index (end of period) Money and credit (end of period) Net domestic assets Broadmoney M2 velocity (non-oil GDP/average M2) Base Money in real terms (percent change)
3.3 -2.2 10.3 959 848 98 77 12 67 3.35 -0.5 11.2 13.1 9.0 1,322 1,157 44 31 -97 50 3.55 19.1 20.6 26.0 14.1 2,129 1,866 23 19 -9 60 3.33 40.2 14.6 15.0 13.8 2,780 2,449 13 10 -102 43 2.92 30.0 30.2 40.9 13.7 3,614 3,082 8 7 -52 29 2.65 16.0
(Percentage of GDP, except where indicated) Fiscal accounts Total revenue Of which : oil grants Total expenditures Overall balance (accrual basis) Non-oil fiscal balance (accrual basis) Overall balance (cash basis) External sector Current account balance (including transfers; deficit -) External debt (in billions of U.S. dollars) External debt-to-GDP ratio Debt service-to-net-exportratio 3/
37.9 27.9 0.8 44.3 -6.4 -35.1 -5.6 -5.1 10.2 73.1 16.5 36.9 28.4 0.5 38.5 -1.6 -30.4 -3.7 3.5 10.8 54.5 16.4 38.0 30.1 0.2 31.2 6.8 -23.6 6.0 12.9 12.6 38.5 10.5 38.0 30.0 0.3 35.7 2.2 -28.0 1.6 8.8 15.0 34.1 4.8 37.9 30.5 0.2 32.5 5.4 -25.3 3.1 12.4 16.3 27.7 6.4
(In millions of US. dollars, except where indicated) Net international reserves (end of period) 4 Gross international reserves (end of period)
790 800 13,956 79.1 1,041 875 28.2 -38.8 2,023 2,034 19,800 85.6 1,652 989 36.4 -34.3 4,140 4,147 32,810 80.8 2,860 1,247 50.1 -26.6 9,252 9,261 44,103 13,920 13,927 59,019
Memorandum items: Gross domestic product (in millions of US$) Official exchange rate (kwanzas per U.S. dollar: end-of-period) Gross domestic product (in billions of kwanzas) Oil production (thousands of barrels per day) Price of Angolas oil (U.S. dollars per barrel) Non-oil fiscal balance/GNDI
...
...
Sources: Angolan authorities and IMF and World Bank staff estimates and projections. End of period. A positive sign denotes appreciation. As percentage of beginning-of-periodM3. 31 In % of exports net of oil-related expenses such as oil-related imp. of goods and services and oil companies remittances. 4 Includes government deposits in overseas accounts.
/
Annex 3: Angola: Joint IMF-World Bank Debt Sustainability Analysis (June 2006)
Based on the joint Low-Income Country Debt Sustainability Framework o the World f f Bank and the IMF,13Angola is assessed to be at moderate risk o debt distress. I t s debt ratios have improved substantially in the last two years, and will continue to do so under the baseline scenario used in this analysis, owing to higher oil revenues. Foreign exchange reserves are also expected to continue to rise, provided that Angola implements prudent macroeconomic policies, reducing the likelihood o Angola facing repayment f dificulties on its external debt. With its heavy reliance on oil, however, Angola remains vulnerable to reductions in oil prices. Going forward, Angola will be at much lower risk o debt distress if it abstainsfrom further non-concessional external borrowing. f
1. Introduction
This i s the first debt sustainability assessment (DSA) for Angola prepared under the new joint Bank-Fund Low-Income Country (LIC) Debt Sustainability Framework (DSF). The framework provides a clearly defined methodology for assessing the risk of debt distress in LICs, based on forward-looking projections o f the path o f five debt burden indicators (under both a baseline and standardized stress-test scenarios), o f which this DSA w i l l focus primarily on three: the net present value (NPV) o f external debt-to-GDP ratio; the NPV of external debt-to-exports ratio; and the debt service-to-exports ratio.14 The DSA compares the forecast trajectories o f these measures with policy-dependent indicative thresholds, which take into account the strength of policies and institutions as a measure of the countrys ability to sustain external debt without experiencing repayment difficulties (Table l).I5*l6
The 2005 D S A showed Angolas debt ratios (albeit with slight methodological differences from the present analysis) well in excess o f the World Bank thresholds. Since then, higher o i l prices and volumes have brought down all Angolas debt-burden indicators. This DSA assesses the likely path o f Angolan external debt indicators under a updated baseline scenario for macroeconomic indicators and external borrowing, and n uses both standardized and customized stress tests to evaluate the robustness o f Angolas falling debt ratios.
LIC-DSA was jointly prepared by the staffs of the World Bank and the IMF. DSF also requires analysis of debt service to fiscal revenues and the NPV of debt to fiscal revenues. However, given the close identification of both exports and fiscal revenues with oil revenues, these provide no additional insight once ratios to GDP and exports have been considered; for t h i s reason, this DSA focuses only on ratios to GDP and to exports. l5 See Debt Sustainability in Low Income Countries: Proposal for an Operational Framework and Policy Implications. Document No. IDMR2005 (World Bank) and SM/05/109 (IMF). l6 The World Banks Country Policy and Institutional Assessment (CPIA) ranks Angola as a weak erformer under the DSF classifications. The DSA was prepared by the IMF staff in February 2005 SM/05/69 (IMF). Exports of goods and services excluded oil-related expenses. I t predated the joint LIC DSF.
l4 The
l3 This
-32-
In view of the current level o f Angolas gross international reserves and i t s expected upward trend, international reserves are also incorporated into the discussion o f debt vulnerability .
30 100 200
36 49 95
25 15
20 11
Angolas external debt continued to rise in U S dollar terms in 2005. Total external debt i s estimated at US$12.6 billion as o f end-2005. In 2005, although the government used part of i t s surplus to pre-pay oil-backed commercial debt (US$600 million), the national o i l company Sonangol drew down US$3 billion from an oil-backed commercial credit line. At the same time, Angola has continued to accumulate arrears to Paris Club creditors. The share of commercial debt in Angolas external debt has almost doubled in the last three years. Even though the central government reversed the upward trend in i t s dependence on commercial borrowing in 2005, total commercial debt continued to increase as a result of Sonangols new borrowing. As a result, the share o f official bilateral debt has decreased, in spite of the accumulation of arrears and related charges (see Figure l), the share o f multilateral debt has remained below 5 percent. while Domestic debt i s not a significant factor in Angolas overall debt sustainability. Angolas domestic debt amounts to less than 15 percent of total public sector debt and i t s share i s not expected to increase in the medium term, as o i l revenues provide the government with sufficient resources to cover forecast public expenditures. The only
- 33 -
buoyant element i s the expected settlement o f domestic arrears with the issue o f treasury bonds. For this reason, domestic debt i s not analyzed in the present DSA.
Estimated foreign exchange reserves more than doubled to above US@ billion by end-2005 from about US$2 billion at end-2004. The end-2005 level represents approximately two months of imports o f goods and services, and about one-third of total external debt. The growing size o f government o i l revenues i s expected to give rise to continued accumulation o f foreign exchange reserves, if public spending growth i s kept at sustainable levels.
60 50 40 30 20
10 -
7
----------.
I . .
The baseline scenario (Tables 2 and 3 and Figure 5) shows favorable external debt dynamics. The baseline scenario i s based on the macroeconomic assumptions and o i l sector developments presented in Boxes 1 and 2, respectively. Apart from the ratio o f NPV of debt-to-GDP in 2006, all three debt-burden indicators are expected to remain below their policy-dependent thresholds. The N P V o f debt-to-GDP ratio i s expected to decline from 32 percent in 2006 to 14 percent in 2016. The NPV of debt-to-exports i s expected to decline from 46 percent in 2006 to 27 percent in 2016. Debt service-toexports i s expected to increase from 5 percent in 2006 to 7 percent in 2016 but thence to fall towards 3 percent by 2026.
- 34-
Real sector: Real GDP i s expected to grow at an average rate o f 12 percent during 2006-1 1, reflecting further increases in o i l production and a continued strong recovery (12 percent) in the non-oil economy. However, following the assumed peaking o f o i l production in 201 1, and some slowing in the non-oil economy (to 7 percent growth), the average GDP growth rate i s projected to fall to 3 percent during 2012-26. The non-oil sector w i l l benefit in this period from the economic and social infrastructure improvements now being implemented, which w i l l help to speed the diversification o f the domestic economy, notwithstanding the appreciated real exchange rate. Inflation: The 12-month inflation rate i s projected to decline to about 5 percent b y end-2008, as a result o f a continuation of the authorities macroeconomic stabilization policies, based on a prudent fiscal stance and sustained monetary control. Inflation then stays close to t h i s level throughout the forecast period. The nominal exchange rate i s assumed largely to track the projected inflation differential with the US: no reversal o f the recent rapid increase in the real exchange rate i s assumed. External sector: Despite reaching a peak in 2011, crude o i l i s projected to continue to be the dominant export product. I t s share in total exports i s expected to fall from 95 percent over the 2006-1 1 period to 85 percent by 2026. O i l production i s expected to grow at an average annual rate o f about 12 percent during 2006-1 1 and decline at an annual average rate o f 4 percent for the remaining period. The path o f Angolas o i l price i s based on the April 2006 WEO, reaching a local peak in 2007 o f US$57 per barrel (some way below current market levels). I t i s then S assumed to fall to US$53 per barrel b y 2011before rising again, in line with U inflation, to an average o f US$61 per barrel in 2026. The only other significant export projected in the medium term i s diamond production, which i s expected to increase by 13 percent per year during 2006-1 1 as more kimberlitic pipes are exploited. Thereafter, annual production increases at 3 percent. Imports are projected to grow b y about 15 percent per year during 2006-12, reflecting sharp increases in central government capital spending. However, average import growth i s expected to fall to about 1percent thereafter. In this context, gross international reserves are projected to increase sharply, reaching US$9 billion in 2006 and U S 3 3 billion b y 201 1. The import coverage o f Angolas gross international reserves i s projected to grow to four months by 2006 and 11 months b y 201 1 and remain at that level through 2026. Beyond 2008, the ratio o f reserves to total external debt w i l l exceed 100 percent. External debt: I t i s assumed that the recently agreed credit line from China International Fund (US$lO billion) w i l l be disbursed over five years. Reflecting this and other bilateral credit lines (including China Eximbank), foreign financing inflows are projected to average about US$3 billion during the 2006-1 1 period and US$SOO million over 2012-26. For comparability purposes, i t i s assumed that arrears w i l l be rescheduled on non-concessional terms, as in the 2005 DSA. The rescheduling i s envisaged to take place at end-2007. Post-cutoff date debt i s projected to be repaid in five years and pre-cutoff date debt in arrears i s assumed to be rescheduled on Houston terms (15 year maturity with three years o f grace, at market rate).
- 35 -
Box 2. Angola: Oil Sector Angola i s the second largest oil producer insub-Saharan Africa, with almost two-thirds of GDP stemming from the petroleum sector. Oil output averaged 1% million barrels per day (bpd) in 2005. Based on current discoveries, oil output i s expected to reach about 2 million bpd in 2007 and to peak just below 2% million bpd in 2010. Proven reserves are currently estimated at nearly 9 billion barrels, excluding developments covered by the ongoing licensing round.
30
Authorities projections
3.0
Oil production
- 2.5 - 2.0
.-
fe
v)
Y
'j i
15 10 50 '
"
*..
.'
....................
= . 2 e
E
v
- 1.0 6 m - 0.5
"
'
'
'
'
0.0
Oil currently accounts for about 95 percent of exports and about 80 percent of government revenues. Government oil revenues reached US$9.9 billion in 2005, compared with US$3.9 billion in 2003, reflecting increases in both oil production and international prices. The government's share in total oil revenues fell to 43 percent in 2005 and i s assumed to remain close to this level. This decline (from 53 percent in 2000) reflected changes in the source of oil output towards new deep-water platforms, where higher unit costs and bigger tax deductions by oil companies, to cover their initial exploration and development, reduce the government's take. The decline was limited by rising oil prices, which reduced the impact of costs and tax offsets. From now on, staffs assume that fast cost recovery in newer deep water platforms will offset the impact of higher government take in the older platforms, keeping the government's revenue share relatively unchanged. The authorities' medium-term projections indicate that, after peaking in 2010, oil production will fall to 1.8 million bpd by 2014. Staffs have extrapolated these projections for 2015-26, based on past production profiles and information on ongoing and expected drilling activity, as well as expected investments by oil companies. Staffs' assumptions imply a further decline in production, to below 1.25 million bpd in 2026.
- 36 -
l8 The standard deviation o f the export growth rate over the past 10 years (the period used to derive the magnitude o f the shock for the stress test) i s about 30 percent, due to some sharp changes (mostly increases) in both o i l prices and production. l 9 Another standard stress test under the DSF, that o f setting macroeconomic and financial variables to their ten-year historical averages, was not viewed as informative in the case o f Angola. This scenario showed external debt declining rapidly towards zero as a result of high foreign direct investment (averaging over 7 percent o f GDP), export growth, and l o w external borrowing.
- 37 -
(e) Customized Sensitivity Analysis As Angola's history of export volatility i s not a good guide to future shocks, an additional stress test i s performed using a 20 percent shock to the baseline price.20The results are shown below (Figure 2). The impact of lower commercial borrowing i s also considered.
(i) Oil Price Shock Angola's external debt sustainability i s judged to be at risk from a future oil price shock of plausible magnitude. Under a price shock o f 20 percent, debt service would rise above the threshold o f 15 percent of exports for the years 2014-16, and remain above 14 percent for the longer period o f 2010-16 (Figure 2, third panel). The debt-to-GDP indicator would also remain above i t s 30 percent threshold for a considerable period (2006-2013) following the o i l price shock, suggesting longer-term downside risks (Figure 2, first panel). However, as noted earlier, international gross reserves, not considered in the DSA, would facilitate Angola's ability to weather such a shock.
Lowering dependence on commercial borrowing would help Angola to reduce its debt vulnerability. As Angola i s expected to run substantial fiscal and current account surpluses for 'the projection period, and to accumulate international reserves, it would have the option of avoiding any increase in i t s overall external public debt level. In this context, the impacts of two scenarios of reduced external borrowin on the baseline scenario for the debt-to-GDP ratio are presented below (Figure '3 :) The first scenario simulates the debt profile in the absence o f borrowing from the most recent US$lO billion credit line from China International Fund. The second scenario goes further and assumes that there i s no new non-concessional borrowing. In both scenarios, apart from the initial year, debt burden indicators fall below their indicative thresholds for the entire projection period, with the difference between these reduced borrowing simulations and the baseline most significant in the first half of the projection period (to 2016).
(ii) Reduced Commercial Borrowing
2o The standard deviation o f the spot price o f Brent crude for the period 1986-2005 i s about US$10 (2006 WEO, staff calculations). The o i l price used for the baseline o f this DSA varies between US$52 and US$61 ffr barrel over the forecast period (see Box 2). Debt-to-exports and debt service-to-exports are not shown as they remain well below their respective thresholds in this example.
- 38 -
60
Figure 2. Angola: Indicators of Public and Publicly GuaranteedExternal Debt Under Alternative Scenarios, 2006-2026 (In percent)
NPV of debt-to-GDP ratio
50
40 30 20 10
- \
'" "
Threshold
o
120
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
"
"
"
"
'
"
"
'
'
1 0 0 . . . . . 1 . . . . . - - . . - - 1 . - - 1 - - - 1 - - - ~ . ~ ~ ~ . . ~ . . . . ~ . 80 60 40 20
- 1
-
0-'
+ -
-Baseline
\
\
Price Shock
---.I--,
\"'
20 18 16 14 12 10
8 6 4 2 -
&->
c \ /-----
-x\
- 39 -
35
Figure 3. Angola: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios (Reduced Borrowing), 2006-2026 (In percent)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
A prudent foreign borrowing strategy would thus help reduce Angolas vulnerability to export shocks. Although i t would not prevent a 20-percent oil price shock from causing debt-to-GDP to breach the 30-percent threshold, i t would keep debt service below the threshold of 15 percent of exports (Figure 4). Angolas vulnerability to export shocks could thus be reduced b y a prudent approach to borrowing at nonconcessional interest rates.
- 40 -
Figure 4. Angola: Indicators of Public and Publicly GuaranteedExternal Debt Under Alternative Scenarios (Oil Price Shock and Reduced Borrowing), 2006-2026 (In percent)
60
20 10
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
-_
18 16 14 12 10
8 6 4 2 -
- - . - . - r - * *
IV. Conclusions
Owing to its heavy reliance on oil exports and i t s high dependency on nonconcessional borrowing, Angola remains exposed to risks from global economic conditions, including both oil prices and international interest rates. While the baseline assumptions used for this DSA suggest a favorable outlook for Angolas external debt sustainability, there i s a high degree o f uncertainty in the outlook associated with o i l prices; this i s in part reflected in the magnitudes o f the stress tests embedded in the L I C DSF methodology. The DSA results should be interpreted taking into account Angolas substantial current and projected future external reserves. If macroeconomic policies are prudent, these reserves w i l l rule out any likelihood o f repayment difficulties relating to amortization and interest obligations on Angolas external debt. In this sense, the main risk to Angolas debt sustainability over the forecast period i s a policy risk.
- 41 -
In staffs view Angola i s at a moderate risk of debt distress over the 20-year forecast period under the DSF. The motivation for this assessment is:
- Despite the rapid improvement in Angolas debt burden indicators in recent years, the debt-to-GDP indicator, at 36 percent, remains above the indicative threshold o f the DSF for a country of Angolas policies and institutions: Angolas debt burden indicators are highly sensitive both to the standardized stress tests under the DSF and those suggested by a more tailored approach. Under a wide range o f stress tests, debt burden indicators are pushed above their indicative thresholds for significant periods;
- Angola i s currently borrowing externally almost entirely at nonconcessional terms, making i t s debt service indicators sensitive to changes in macroeconomic conditions or financing volumes. Angola i s building up a cushion of international reserves, which w i l l allow i t to weather external shocks.
Angola should reconsider i t s external borrowing strategy in light of the future debt service burden that would be implied by taking on high volumes of non-concessional debt in the near term. The buildup of commercial debt could also jeopardize Angolas access to concessional finance because of free-riding issues.
- 42 -
70 60 50 40 30 20
10
Figure 5. Angola: Indicators of Public and Publicly GuaranteedExternal Debt Under Alternative (Standardized) Scenarios, 2006-2026 (In percent)
NPV of debt-to-GDP ratio
0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 140
20
~ " " " " " " " " " " 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
30 25 20
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
- 43 -
c e
O O
N N
Table 3. Angola: Sensitivity Analyses for Key Indicators of Public and Publicly Guaranteed External Debt, 2006-26
(In percent)
2006
2007
2008
2011
2016
2026
32
26
26
27
23
22
14
-13 17
-23 6
B. Bound Testa
B 1. Real GDP growth at histoncal average mmus one standard devrationin2007-08 B2. Export value growth at historical average minus one sfandard deviation m 2007-08 31 B3. U dollar GDP deflator at histoncal average mmus one standard deviation i n 2007-08 S B4. Net non-debt creating flows at histoncal average rmnus one standard deviation in 200748 41 B5. Combinationof B1-B4 usmg one-half standard deviation shocks B6.Gne-time 30 percentnominal deprenation relative to the baseline m 2 W 7 5/ 32 32 32 32 32 32 34 46 27 26 45 37 36 65 28 30 47 37 37
28 31 46 37
33 55 25 27 40 33
31 50 23 25 37 31
21 14 15 18 19
19
4 3 3 3 3 4
46
35
36
38
34
34
27
11
46
46
39 36
39 37
37 40
30 37
23 37
-26 33
-87 21
B. Bound Tests B1. Real GDP growth at histoncal average mmus one standard devlation m 2007-08 B2. Export value growth at historical average minus one standard deviation m 2007-08 31 B3. U S dollar GDP deflator at hxstoncal average mmus one standarddeviation in 200748 B4. Net non-debt creating flows at histoncal average mmus one standard devtation m 200748 41 B5. Combinationof Bl-B4 usmg one-half standard deviation shocks B6.One-time 30 percentn o d depreciation relative to the baseline m 2007 51 46 46 46 46 35 85 35 35 62 35 36 124 36 41 61 36
38 127 38 44 63 38
46
46
34 112 34 39 55 34
34 106 34 39 53 34
27 59
29 34 21
21
11 16 11 11 12 11
5 5
6 6
5 5
5 6
5 7
5 7
. 1 6
-9 1
B. Bound Tests B 1. Real GDP growth at histoncal average minus one standard devrationm 2007-08 B2. Export value growth at historical average minus one standard deviation m 2007-08 31 B3. U S dollar GDP deflator at bistoncal average mmus one standard deviation in 2007-08 B4. Net non-debt creating flows at hismncal average mmus one standard devlation in 200748 41 B5. Combinationof BI-B4 us% one-half standard deviation shocks B6.0ne-lime 30 percent n o m d deprenation relative to the baseline m 2007 51
Memorandumirem: Grant element assumed on residual f m c m g (Le., f m c i n g requued above baseline) 61
5 5 5 5 5 5
6 8 6 6 7 6
5 9 5 6 7 5
6 17 6 7 10 6 1
7 22 7 8 11 7
7 22 7 8 11 7
1 26 7 9 13 7
1
3 4 3 3 3 3
Source: Staff projectionsand simulations. 11Vanables mclude real GDP growth, growth of GDP deflator (in U.S.dollar terms), non-interest current account m percent of GDP, and non-debtcreating flows. 21 Assumes that the mterestrate on new borrowmg IS by 2 percentage pomu higher than in the baseline.. while grace and maturityperiods are the same as m the baseline. 31Exports values are assumed to r e m permanentlyat the lower level, but the current account as a share of GDP i s assumed to r e m to itibaseline level after the shock (implicitly assunung an offsetting adjustment in unport levels). 41 Includes official and pnvate transfers and FDI. 51 Deprectationi s defined as percentzge decline in dollarflocal currency rate, such that i t never exceeds 100 percent. 61 Applies to all stress scemos except for A (less favorable f m c i n g ) m which the terms on all new fmancmg are as specified in footnote 2. 2
- 45 -
March 2002
Government government, UNITA, National Assembly, and International Witness National Assembly Opposition parties, led by UNITA Government President
April 2002
Initiated national reconciliation and review o f electoral legislation. Brought the civil war to an end.
April 2004
M a y 2004
National Assembly passes law pardoning all crimes against the state forces committed during the armed conflict. Opposition suspends participation in the constitutional commission, which had been established in M a y 1998. Government terminates the mandate o f the constitutional commission. President announces the possibility that legislative elections can be held before approval o f the new constitution and presidential elections. President requests the National Assembly and the Supreme Court to make a decision concerning the still incomplete second round o f 1992 elections. National Assembly approves establishment o f the National Electoral Commission. Peace agreement signed granting Cabinda special status within Angola. Voter registration begins and i s scheduled to be completed by June 2007.
Promoted national reconciliation. According to the opposition, action was meant to force the President to set the dates for the general election. Transferred mandate to draft a new constitution to National Assembly. Set possible timeframe for new elections.
November 2004
President
April 2005
Furthered preparations for elections. Reduced the risk o f Cabinda breaking away from the national temtory. Furthered preparations for elections.
- 46 -
Annex 5: Angolas Status with Respect to Criteria of the Extractive Industries Transparency Initiative
(as o f April 2007)
Regular publication o f all material oil, gas and mining payments by companies to governments (payments) and all material revenues received b y governments from oil, gas and mining companies (revenues) to a wide audience in a publicly accessible, comprehensive and comprehensible manner. Where such audits do not already exist, payments and revenues are the subject o f a credible, independent audit, applying international auditing standards. Payments and revenues are reconciled by a credible, independent administrator, applying international auditing standards and with publication o f the administrators opinion regarding that reconciliation including discrepancies, should any be identified.
Add data o n payments made by petroleum industry. Improve accessibility o f website. Consider broader media publication. Add diamond sector.
Rigorous annual petroleum industry cost and fiscal audits b y experienced international auditors.
Angolas audits go well beyond EITI requirements, but focus on companies and payments made. Existing audits could be easily extended to include revenues received b y government since required data are readily available. Have auditor make explicit comparison o f payments made and revenues received (all data i s currently available). Publish.
Auditor reconciles tax filings with revised tax assessments and with payments made, and identifies discrepancies.
Sonangol i s rigorously audited, but Sonangol audit data often derived from block 0perat0r.
Sonangol to provide data directly to Ministry o f Finance. Publication o f Sonangol corporate audits (the latter is not an EITI requirement, but would have an enormous positive impact). Establish a mechanism (e.g., multistakeholder working group) for regular consultation between government and civil society on extractive industry issues. Memorandum o f Understanding on the format and operation o f the group could be agreed. Prepare work plan and publish (e.g., o n website) or announce explicit plan.
C i v i l society i s actively engaged as a participant in the design, monitoring and evaluation o f t h i s process and contributes towards public debate.
Limited current engagement by government with civil society o n extractive industries. Ongoing independent civil society activity.
No current plan, although individual components have been undertaken (with assistance from the World Bank and other donor partners) and follow-up discussed.
A public, financially sustainable work plan for all the above i s developed b y the host government, with assistance from the international financial institutions where required, including measurable targets, a timetable for implementation, and an assessment o f potential capacity constraints.
- 47 -
equipment.
Some progress h a s been made in improving maternal health (Goal 5). A nationwide data collection conducted in 2003reported the maternal mortality ratio to be 1,400 compared to 1,800 in 2000. There has been progress in family planning. However, more work needs to be done with respect to promoting the use of contraception and improving the quality of maternal health, which remains among the lowest in the world. There h a s been little progress in combating HIWAIDS, malaria and other diseases (Goal 6). The official HIV adult prevalence rate i s 3.7%, although i t i s believed to be higher. Angola made some progress in improving access to urban water i s and ensuring environmental sustainability (Goal 7). In the period 2001 to 2003, the percentage of the urban population with access to drinking water increased from 62% to 68%. However, the current level of provision and quality of water and basic sanitation are extremely low. In environmental management, more remains to be done as recent trend environmental loss raises awareness of the risk of environment sustainability.
- 48 -
MDG Target
for2015
Target feasibility
68% 58%
49%
Unlikely
38%
29%
2. Achieve universal primary education Target 3: Ensure that, by 2015, children everywhere, boys and g i r l s alike, will be able to complete a full course of primary schooling (Net enrollment ratio in primary education, Indicator 6)
50.3%
100%
Unlikely
34.7% 3. Promote gender equality and empower women Target 4: Eliminate gender disparity in primary and secondary education, preferably by 2005, and to all levels of education (Gender ratio in primary, Indicator 9a)
100%
85.2%
100%
Unlikely
47.1
23
Unlikely
49%
48%
47%
Unlikely
36%
53%
Source: World Development, Indicators, Ministry o f Planning/UNDP MDG report summary and http:Nmdgs.un,ordunsd/mdd.
- 49 -
Guarantee
Contract of Petroleum supply
Credit Insurance Hermes Germany (No date provided) Deutsch Bank, Spain November 2003 Export Import Bank of India August 2004 China EximBank March 2004
Euribor+l.25%
Ministry of Finance
US$500 million
US$40 million
US$2 billion
5 contracts for the supply of equipment for MoCamedes Railway Public Project Investment
1.75%
Installation commission (1% flat) Management commission 1% flat) Variable Insurance Premium
Ministry of finance
Ministry of Finance
+ 1.5%
Libor 3 months
Management commission (0.3%) Installation commission Immobilization Commission (0.3%) Management commission (0.1%) Management commission 0.3% Immobilization commission 0.3% Management commission (0.10% above each disbursement)
PortugalCosec Nov. 2004 China Fund 2005 Export Import Bank, Korea December 2005
Public project investment Projects managed by government Rehabilitation project of cotton in Sumbe
Ministry of Finance
0.60%
Ministry of Finance
-50-
Fortis Bank, Spain September 2005 Brasil Proex 2006 million investment
Libor
Brazilian Development million Bank 2006 Export Import Bank o f India July 2006 US$10 million
investment
Libor + 1%
commission 1% Immobilization commission (0.5%), to be confirmed Management commission (0.5% per Year) Immobilization commission (0.5% flat)
- 51 -
Status: Progress i s satisfactory. Roll-out o f SIGFE i s moving as planned; oil revenue management unit in Ministry of Finance became operational on April 1,2006; fiscal programming unit in the Ministry o f Finance to strengthen fiscal data reporting has been established and i s setting the stage for a MediumTerm Expenditure Framework. Progress i s slow. National procurement law has not been drafted yet; government has appointed a task force to spearhead national procurement reforms, but practical results have yet to materialize. Bank continues to advise authorities on procurement issues.
Continued implementation of the key findings of the PEMFAR study, including satisfactory roll-out o f the Angolan integrated financial management information system (SIGFE) and progress towards the establishment, staffing, and operation of an upgraded revenue management capability in the Ministry of Finance. Substantial progress on national procurement reforms initiated under the CPAR, including: (a) creation of new legislative and institutional arrangements (appeal mechanisms, contract administration, and dispute resolution) for a new national procurement regulatory body; and (b) preparation of an appropriate national procurement capacity building strategy, with broad-based civil society participation. Timely quarterly publication and wide-spread dissemination through local and international channels of national oil and diamond receipts, underpinned by timely completion and publication of annual financial audits of Sonangol and Banco Nacional de Angola (Angolas central bank) by internationally reputable firms. Completion of a comprehensive inventory of current and planned national programs o f capacity development, as a key input for a National Stakeholders Capacity Building Forum
Progress i s slow. Oil revenues are published in the Ministry o f Finances website with a six-month delay. N o progress on dissemination o f diamond revenues, but audits are being conducted. Audits o f Sonangol are being conducted, but auditors reports have yet to be published. Progress i s moderate. Assessment o f capacity development needs has been carried out with Bank support, but National Stakeholders Capacity Building Forum not yet scheduled.
Satisfactory implementation of the Bank-supported investment program (Third Social Action Fund; Angola Emergency Demobilization and Reintegration Project; HIV/AIDS Malaria, and Tuberculosis, Emergency
Progress i s satisfactory. With the exception of Economic Management Technical Assistance, all Bank projects are rated as satisfactory.
Finalization of the ECP, and monitoring o f its implementation by a broad-based, participatory stakeholder group (government, civil society, donors, private sector); and satisfactory implementation of the key agreed findings of concluded advisory support activities (especially the oil diagnostic study and the Country Framework Report of the Public Private Infrastructure Advisory Facility), together with substantive progress on the implementation o f the dissemination and recommendationsof analytical and advisory activities initiated under the ISN.
Progress i s moderate. A revised ECP i s being prepared. Government has generally been following advice on macroeconomic management, public finance management as recommended in Banks analytical and advisory activities; Country Economic Memorandum has been concluded and i s being discussed with the authorities in November 2006. The Bank i s concluding a public expenditure review in partnership with the UNDP, FAO, WHO, UNICEF, and the EC.
- 52 -
Annex 9: Advisory and Analytical Work under Interim Strategy Note, 2005-06
Investment Climate Assessment Public Expenditure Review
Activity
Country Economic
~
Evaluate investment climate and identify policies to strengthen the private sector Assessment of expenditure across and within functions, focused on health, agricultural and education sectors Policy advice on reactivating Angolas productive sectors to reduce reliance on imports Analysis of oil. broad based growth opportunities and equitable distribution Analysis of social opportunities, constraints, risks and vulnerabilities Systematic review of the process of budgetary planning execution and
Objective
Status Underway
Underway
Completed study launched in November 2006 Study completed i n March 2005 Completed study launched in February 2005
- 53 -
- 54 -
Agree what quasi-fiscal activities are to be identified and measured within Sonangol for recovery (that i s subject to the profit oil and tax offsets)
Unsatisfactory - There are frequent disputes about the amounts presented by Sonangol to MINFIN. No clear plan to phase them out.
Include such activities as a separate task within the independent audits of Sonangol Submit an independentlyaudited analysis of unbudgeted non-conventional- type costs, i n accordance with a Cabinet Minute to simplify and accelerate the approval process within MINFIN Extend the scope of the tax audits to include an examination of the calculationof net taxes due to the Treasury after netting off offsets and the value of quasi-fiscal activities Formalize the foregoing in a new procedure approved by Cabinet Establish formal reporting mechanisms from Sonangol to MINFIN and to BNA
MINFIN (DNI)
Council of Ministers BNA, MINFIN (DNI, DNC, DNT, INF), and Sonangol MINFIN
filings with revised tax assessments and with payments made, but netting off and QFAs of Sonaneol not included. Unsatisfactory - No formal procedure to that effect i s in place. exist, but there i s no clear plan and a calendar to phase out Sonangols QFAs.
P
Moderate - Policy to gradually eliminate subsidies implemented in 2004 and 2005, but halted with oil rice increases in 2005.
-55-
.56 .
Angola a t a glance
Key Development Indicators
(2006)
4/5/07 SubSaharan Africa 741 24,265 2.1 35 552 745 1,981 5.3 3.1 Lower middle income 2,475 39,946 1.o 50 4,746 1,918 6,313 6.9 5.9
Population, mid-year (millions) Surface area (thousand sq. km) Populationgrowth (%) Urban population (*A of total population) GNI (Atlas method, US$ billions) GNI per capita (Atlas method, US$) GNI per capita (PPP, international$) GDP growth (%) GDP per capita growth (%) (most recent estimate, 2000-2006) Poverty headcount ratio at $1 a day (PPP, A) Poverty headcount ratio at $2 a day (PPP, %) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (hof children under 5) Adult literacy, male (% of ages 15 and older) Adult literacy, female (% of ages 15 and older) Gross primaryenroliment, male ( O h of age group) Gross primaryenrollment, female (%of age group) Access to an improved water source (% of population) Access to improved sanitation facilities (% of population)
5M4
a44
a 2 4
2024
1014 04
30
10
10
20
30
percent
41 154 31 83 54
41 72 47 100 29
250 2w
150 1W
99 87 56 37
50 0
19w 1985
53 31
2 m
2w5
DAngola
BSub-Saharan Africa
1980 52
0
1990
2006 a 442
64 26 24
266 1 0 11 3.2 25
I
I
20 10
1.5 28
0
40 -20
.30
BJ
w
-GDPpercapita
+GDP
Population, mid-year (millions) GDP (US$ millions) Agriculture Industry Manufacturing Services Household final consumption expenditure General govt final consumption expenditure Gross capital formation Exports of gwds and servics Imports of goods and services Gross savings
7.8
10.5 10,260
13.8 9,129
16.4 44,103
7.2 74.0 3.6 18.7
14.1
73.5 48.3 22.9
Note Figures in italics are for years other than those specified 2006 data are preliminary Group data are for 2005 a Aid data are for 2005. Development Economics, Development Data Group (DECDG).
- 57 -
Angola
Balance of Payments and Trade
(US$ mi//ions) Total merchandise exports (fob) Total merchandise imports (cif) Net trade in goods and services
2000 2006 23,724 6,667 8,266
Workers remittances and compensation of employees (receipts) Current account balance as a % of GDP ReSeNeS, including gold
795 8.7 1,198
2000
3,896 8.8
3,107 2006
Rule of law
Control of corruption
0
25 50
75
1W
2005
0 2000
Overall balance (accrual basis) Highest marginal tax rate (A) individual Corporate
2000
10.4
2005
75
(US$ millions)
Environment
9,408 1,705 11,755 2,239
Agricultural land (% of land area) Forest area (A of land area, 2000 and 2005) Nationally protected areas (/ of land area) . Freshwater resources per capita (cu. meters) Freshwater withdrawal (% of internal resources)
C 0 2 emissions per capita (mt)
46 47.9
0.2
GDP per unit of energy use (2000 PPP $per kg of oil equivalent) Energy use per capita (kg of oil equivalent)
(US$ mi//ions)
IBRD Total debt outstanding and disbursed Disbursements Principal repayments Interest payments IDA Total debt outstanding and disbursed Disbursements Total debt SBNlCe IFC (fiscal year) Total disbursed and outstanding portfolio of which IFC own account Disbursements for IFC own account Portfolio sales, prepayments and repayments for IFC own account MlGA Gross exposure
226 24 2 1 1 1 0 21 319 30 7 2 2 1 0 16
2000
2006
Note: Figures in italics are for years other than those specified. 2006 data are preliminary. .. indicates data are not available. -indicates ObSeNatiOn is not applicable. Development Economics, Development Data Group (DECDG).
4/5/07
- 58 -
34
37
09 30
05 3r
10 1
93
D6
0
I
i 1
ducahan iodicatmi
I@
I
4
- 59 -
Indicator Portfolio Assessment Number of Projects Under Implementationa Average ImplementationPeriod (years) Percent of Problem Projects by Number Percent of Problem Projects by Amount a, Percent of Projects at Risk by Number a, Percent of Projects at Risk by Amount DisbursementRatio (%) e Portfolio Management CPPR during the year (yesho) Supervision Resources (total US$) Average Supervision (US$/project) Memorandum Item Proj Eva1 by OED by Number Proj Eva1 by OED by Amt (US$ millions) % of OED Projects Rated U or HU by Number % of OED Projects Rated U or HU by Amt
a. b. c. d. e.
2007
Since FY 80 Last Five FYs 11 2 280.7 37.1 36.4 50.0 22.2 12.7
As shown in the Annual Report on Portfolio Performance (except for current FY). Average age of projects in the Bank's country portfolio. Percent of projects rated U or HU on development objectives (DO) and/or implementationprogress (IP). As defined under the Portfolio Improvement Program. Ratio of disbursements during the year to the undisbursedbalance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year.
- 60 -
FY07 (to June 2007) Emergency Multisector Recovery 2 Subtotal N O 8 (July 2007-June 2008) Smallholder Agricultural Development Water Sector Institutional DeveloDment Fourth Social Action Fund Subtotal FY09 (Julv 2008-June 2009) Public Financial Management Health Infrastructure Institutional S u ~ ~ o r t Regional Linkages Subtotal Total FY07-09
102 102
30 50 38 118
15 20 25 10 70 290
- 61 -
Annex B3: IFC & M I G A for Angola Angola I F C and M I G A Program, FY 2004-2007
IFC approvals (US$m)
0.00 11.00
91 9 100
Investment instrument( %)
91
9
0 9 0 0
Total
1.01 0.00
- 62 -
'
Agric. Strategy Policy Note Procurement Reform TA Country Economic Memorandum Diagnostic on Trade Integration
Recent completions
60 10 400
Donor funded
Underway
GDLN TA
2007 2007
225 80
25
Planned Policy Notes Petroleum and Diamond Sector Regional Transport Study Capacity Needs Assessment Policy Notes FSAP Debt Management
a. Government, donor, Bank, public dissemination.
50 50 100 60 50 100 40
- 63 -
Angola Statement of EC's Held and Disbursed Portfolio As of April 3,2007 (In U S Dollars Millions)
Held FY Approval Company 1998 AEF Flecol 2005 CNO OSEL 2003 EBA 2005 Nossa Seguros Total Portfolio: Disbursed
Loan Equity Quasi Partic Loan Equity Quasi Partic 0.6 1 0 0 0 0.61 0 0 0 0 0 0 0 10 0 0 0 0 0.7 0 0 0 0.7 0 0 0 0 1 0 0 0 1 0 10.61
0.7
0 0.61
0.7
- 64 -
Closed Projects
11
IBRDIIDA *
Total Disbursed (Active) of which has been repaid Total Disbursed (Closed) of which has been repaid Total Disbursed (Active + Closed) of which has been repaid Total Undisbursed (Active) Total Undisbursed (Clwed)
94.09
0.00
Active Proiects Last PSR Supervision Rating Project ID Project Name AO-Econ Mgmt TA ( N 0 3 ) AO-Emerg Demob & Reinte AO-Emerg MS Recovery EF AO-HAMSET SIL (FY05) AO-Social Action Fund SIL : DevelOPment Obiectives MS S ImDlementation Proaress Fiscal Year Original Amount in US$ Million: IBRD IDA GRANT
Overall Result
MU MS 5
MS
S S
MAP SECTION
IBRD 33361
GABON
15E
20E
A N GOL A
SELECTED CITIES AND TOWNS PROVINCE CAPITALS NATIONAL CAPITAL RIVERS MAIN ROADS RAILROADS PROVINCE BOUNDARIES
C ON G O
ANGOLA
5S
5S
To Kimpese To Mbanza-Ngungu
CABINDA
Cabinda
Soyo
INTERNATIONAL BOUNDARIES
ZAIRE
Bembe N'zeto
UGE
Uge Uge
40
To Tshikapa
40
80
120 Miles
Ambriz Camabatela
Caxito
D an de
Cua
o ng
LUANDA
Malanje
10S
BENGO
C u a nza
Saurimo
MALANJE
Cacolo
CASSA
LUANDA
Ndalatando Ndalatando
LUNDA NORTE
Lucapa
ATLANTIC OCEAN
Sumbe
LUNDA SMuconda UL
Luau
10S
To Kolwezi
HUAMBO
Benguela
Lobito
Camacupa
Luena
Za
mb
ez
To Solwezi
B e Plateau Be
Huambo
Kuito
Lucusse Lumbala
BI
Chitembo
BENGUELA
Caconda
MOXICO
Lumbala N'guimbo
To Lusaka
HULA
Lubango
15S
Cubango
Matala
Menongue
Cu Cuto Cuto Cuanavale
Namibe
Tombua Tombua
Chibia
Hula Plateau
15S
ZAM B I A
Cu an
NAMIBE
Chiange
CUNENE
ne une
Cu n e
CUANDO CUBANGO
Mavinga
do
b b N a m i b
ne
Chitado
Ondjiva
Cuangar
r t s s s e D e
To Otjiwarongo
To Tsumeb
Cubango
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.
NAM I B I A
15E
Etosha Pan
20E
BO T SWA N A
SEPTEMBER 2004